Policies and rules for determining compensation paid to the Chairman, Chief Executive Offi cer and Directors 56
It is this harmonious combination of all of these strengths that, I believe, makes our company unique.
The Group’s results to December 31, 2005, and June 30, 2006, were announced in press releases and at meetings with the fi nancial press and fi nancial analysts. Earnings announcements were also published in the fi nancial press. Due to the Group’s unusual news fl ow in 2006, the Investor Relations department has published a number of specifi c press releases from the signing of the protocol agreement concerning the creation of Natixis between the Caisse d’Epargne Group and the Banque Populaire Group in March to the commencement of trading of the shares in December. Several presentations about the new Group were also produced.
The usual methods of communicating with individual shareholders will be maintained in 2007, comprising primarily the shareholders’ newsletter.
There were 15 members of the Board of Directors in 2006, as in prior years.
A number of corporate governance rules relating to the composition and powers of the Supervisory Board and the Management Board are determined by the provisions of the pact(5) signed on November 17, 2006, which aims to guarantee equal representation of the two shareholders on the Supervisory Board.
Permanent representative of Banque Populaire d’Alsace, Director of Natexis Pramex International
Director and Chairman and Chief Executive Offi cer of Brasserie des Cimes
Representative of Banque Fédérale des Banques Populaires on the Board of Directors of Natixis Assurances
Permanent representative of Caisse Nationale des Caisses d’Epargne - Member of the Supervisory Board of Ixis Asset Management
In accordance with French law and the bylaws, the Supervisory Board exercises permanent control of the management of the company by the Management Board.
Qualifi cation as an independent member of the Supervisory Board is discussed by the Remuneration Committee, which prepares a report on the subject; the Ethics and Compliance Charter for Supervisory Board members: The internal rules state that each Board member shall devote due time and attention to fulfi lling his or her duties and regularly attend meetings of the Board and Committee or Committees to which he or she belongs. Each Supervisory Board member shall ensure under all circumstances that he or she acts in the business interests of Natixis and endeavor to defend and promote Natixis’ values.
In accordance with the pact signed on November 17, 2006, the two shareholders are equally represented on the Risk Management Committee and the Remuneration Committee, each of which comprises six members, including two independent members. The Risk Management Committee is jointly chaired by the Vice-Chairman of the Supervisory Board and an independent member. By special dispensation, the fi rst joint chairmanship of the Risk Management Committee as of November 17, 2006, shall be shared by a member put forward by Caisse Nationale d’Epargne et de Prévoyance and an independent member. The Remuneration Committee shall be chaired by an independent member.
The company’s Management Board provides the Risk Management Committee with any documents and information
its duties and provide additional information. At the request of the Supervisory Board, the Remuneration Committee may also appoint external experts to carry out studies or analysis of compensation paid to executive directors of comparable companies in the banking sector.
Anthony Orsatelli Salary of €450,000; plus a bonus of 100% of salary if performance targets are reached, up to a maximum of €675,000 if the company achieves 150% or more of its targets.
CORDEL BD SB 15,273 12,900 28,173 de La CHAUVINIERE BD 0 2,700 2,700 de La PORTE du THEIL BD SB 15,273 8,000 23,273
Natixis’ Management and Supervisory Board members include employees of the two shareholder groups (the Groupe Banque Populaire and the Groupe Caisse d’Epargne). There are extensive commercial relationships between Natixis and these two shareholder groups. Although the Group does not consider this situation to constitute a confl ict of interest, it cannot be ruled out that the interests of Natixis and of these shareholding groups may diverge at some point in the future.
The substitute auditors are: Beas, 7/9 Villa Houssay - 92200 Neuilly-sur-Seine; François Chevreux, 40, rue Guersant - 75017 Paris; ■
As No. 2 in real estate lease fi nancing and No. 5 in equipment lease fi nancing in France (source: market professionals), Natixis - with its subsidiary Natixis Lease - operates in all areas of lease fi nancing.
Le Revenu awarded Natexis Asset Management the Trophée d’Or for the best performance for a unit trust and diversifi ed funds range over three years and the best range of sector equities over three years (retail banking category), as well as the Trophée de Bronze for the best overall performance over 10 years.
Natixis Private Equity one of France’s market leaders in private equity for SMEs and a key player in Europe with operations in Germany, Spain and Italy. It is also establishing a growing reputation in the high potential markets of Asia, South America and India. It operates in all areas of private equity - venture capital, expansion capital and buy-out/buy-in fi nancing - with 17 teams, 163 private equity professionals and over 600 investments. With over €3 billion dedicated to the growth of SMEs, NPE is largest source of capital for companies valued at less than €300 million . It sponsors all of the funds it manages from the time they are set up and remains the prime subscriber thanks to the active support of Natixis.
In order to develop integrated and open systems, Natixis created Partecis, a 50-50 joint venture in partnership with BNP Paribas. The aim of this joint venture is to develop a new shared industrial platform for processing electronic banking payments.
On the basis of its existing strong presence, Natixis aims to consolidate its position in France before creating a major European player in the electronic banking payments sector.
The Receivables Management division combines the expertise of Coface, Natixis Factor and GCE Affacturage. It enjoys a marketleading position in France and worldwide in all four business lines, which enable companies to manage, protect and fi nance their accounts receivable: company information, receivables management, credit insurance and factoring. It has developed an effective multi-network strategy. Coface offers Receivables Management solutions through its own network spanning 60 countries and those of its partners in the CreditAlliance network, comprising insurance companies, banks and services companies. Natixis Factor offers solutions through the Banque Populaire and Natixis networks as well as brokers, while GCE Affacturage uses the Caisse d’Epargne and Banque Palatine networks.
“Coface generated 64.5% of itsconsolidated premium income outside France in 2006 „
In addition to the impact on Natixis of the development of the two networks via CCIs, Natixis’s development also stems from existing strong ties with the two groups: industrial ties: Natixis provides services for the Banque Populaire and Caisse d’Epargne banks such as custody, electronic banking, payments processing and IT support; ties as supplier-distributor: Natixis supplies products and services targeted at all customers (personal customers, small businesses, corporate clients and institutional clients) of the Banque Populaire and Caisse d’Epargne groups, which distribute these products; commercial ties: the Banque Populaire and Caisse d’Epargne banks are also direct clients of Natixis and recognized as a customer segment in their own right.
The Group is centered around the Caisse d’Epargne network, France’s third-largest banking network with 4,294 branches, 6,400 ATMs and a full range of online banking services. Nearly one in two people in France are Caisse d’Epargne customers, over 3 million of whom are cooperative shareholders. The Caisse d’Epargne banks are committed to the idea of social progress that led to their creation and are open to everyone. They are continually working on innovations to make life easier for their customers and support them in their plans.
With 26 million customers, Caisse d’Epargne has the largest customer base in France.
In 2006, interest-bearing current accounts helped to boost sales of service packages and win new customers. This relationship has been strengthened by the launch of the S’miles customer loyalty program, which has been particularly popular among the bank’s customers, for which Caisse d’Epargne is the exclusive banking partner. Caisse d’Epargne has confi rmed its position as the leading issuer of Visa cards and as the second-largest issuer for all card brands.
The three-year incentive plan signed in 2006 applies to the parent company and three of its subsidiaries. Sixty percent of the total envelope is distributed on the basis of salary and 40% on the basis of hours or days worked in the company during the period. All in all, for the entities defi ned above, the profi t-sharing and incentive entitlements for 2006, which will be paid in 2007, amounted to €17.3 million and €40.7 million respectively. A range of socially-responsible investment and solidarity funds was added to the employee savings plan in 2006, proving that it is possible to reconcile social utility with fi nancial performance.
In 2006, 112,000 hours training were received by employees of Natixis parent company, including 23% on products and markets and 20% on foreign languages. 281,000 hours training were received by employees of the new entity comprising Natixis and its subsidiaries.
Pro forma fi gures for 2005 and 2006 (change in scope) .
The creation stage focused on regulatory requirements, particularly for the accounting production, risk management and compliance functions. An entire IT project was dedicated to this stage. Its goal was to implement and coordinate all
quotas and who wish to take advantage of the opportunities offered by this new market.
Ixis Asset Management and Natexis Asset Management, both asset management subsidiaries of Natixis, are pioneers in socially responsible investment (SRI)(7) in the broad sense.
The report was prepared with assistance from a reputed French expert in the fi eld of energy and climate change and designer of the Carbon Report methodology, in association with the ADEME environment and energy control agency.
A health and hygiene support committee was also created in 2006 to examine risks on a human level and to make recommendations to Management. The committee’s members include representatives from the CHSCT, the Human Resources, Communications, Logistics and IT Security
The time devoted to training indicates the importance Natixis and its subsidiaries place on developing the skills of their employees. More than 11,552 employees took part in over 281,000 hours of training in 2006 (new scope).
In 2006, the parent company and many of its subsidiaries focused on training for management-level employees (senior executive managers to middle managers), with an increasing emphasis on managerial relationship skills.
The bank pays close attention to diversity management, and in 2006, tasked one of the parent company’s employees with developing a plan to encourage the hiring of disabled workers. An analysis of the bank’s position was carried out during the year, which led to recommendations aiming to develop partnerships with associations with a view to hiring disabled workers, calling on the appropriate sector and encouraging the hiring of interns and temporary workers with disabilities. Internal campaigns to raise awareness about disability are also planned for 2007, aimed particularly at HR employees.
Natixis maintains and develops relationships with certain higher education institutions, selected in accordance with the company’s business lines (business and engineering schools, universities). As a result, 1,295 student interns worked in
GROUND USE, DISCHARGE OF ENVIRONMENTALLY HARMFUL SUBSTANCES INTO THE AIR, WATER AND GROUND, NOISE AND ODOR, WASTE (EN 16 TO 23, EN 29)
Several information seminars on the Kyoto Protocol and the European market in emission quotas were organized for employees in corporate and investment banking to provide them with the expertise required to support clients in their efforts to reduce greenhouse gas emissions.
INFORMATION ON THE TARGETS ASSIGNED TO FOREIGN SUBSIDIARIES WITH REGARD TO POINTS 1 TO 6 ABOVE.
Realization of the anticipated benefi ts from the creation of Natixis will depend in part upon whether the operations of the entities contributed on November 17, 2006, can be integrated in an effi cient and effective manner with those of the former Natexis Banques Populaires Group. Integrating the operations of an acquired business is a complex and lengthy process. Successful integration requires, among other things, the satisfactory coordination of business development and marketing efforts, the retention of key management personnel and professionals, effective hiring and training policies and the alignment of information and software systems. Despite the complementarity of the operations of the contributed entities with those of the former Natexis Banques Populaires Group, there may be diffi culties encountered in combining operations that could result in higher integration costs and lower savings or revenues than expected.
Natixis’ two principal shareholders are BFBP and CNCE, each of which owns approximately 45.5% of Natixis’ share capital. These two shareholders are therefore in a position to exert signifi cant infl uence in the election of Natixis’ directors and offi cers and other corporate actions that require shareholder approval. Pursuant to a shareholders’ agreement signed between the two groups on November 17, 2006, BFBP and CNCE have also agreed to coordinate the voting of their shares with respect to certain actions, in particular with respect to the election of members of the supervisory board and of the management board. Any coordinated action between BFBP and CNCE will further limit the ability of other shareholders to infl uence the corporate governance of Natixis.
The risk management policies and procedures of Natixis will be subject to the approval and control of BFBP and CNCE
In addition, if the equal ownership of the shares of Natixis by BFBP and CNCE is not substantially maintained, or if BFBP and CNCE cease to control Natixis jointly, or if certain legislative changes or other circumstances occur, then the Banques Populaires and the Caisses d’Epargne will each have the right to repurchase the 20% equity interests from Natixis, at a price based on the proportionate share of the net assets of such bank represented by the equity interests, taking into account the valuation method used to determine the initial price paid by Natixis for those interests. The repurchase price may be different from the price that Natixis could have obtained through a sale to an unaffi liated third party. Moreover, following the repurchase Natixis will no longer have an economic interest in the results of the affected bank or banks, and its ability to sell products and services through the affected bank or banks could be impaired.
Even in the absence of a market downturn, below-market performance by Natixis’ asset management business may result in a decline in assets under management (in particular as a result of withdrawals from mutual funds) and in the incentive and management fees Natixis receives.
Natixis is subject to country risk, which is the risk that economic, fi nancial, political or social conditions in a foreign country will affect its fi nancial interests. Natixis does business throughout the world, including in developing regions of the world commonly known as emerging markets. In the past, many emerging market countries have experienced severe economic and fi nancial disruptions, including devaluations of their currencies and capital and currency exchange controls, as well as low or negative economic growth. Natixis’ businesses and revenues derived from operations and trading outside the European Union and the United States, although limited, are subject to risk of loss from various unfavorable political, economic and legal developments, including currency fl uctuations, social instability, changes in governmental policies or policies of central banks, expropriation, nationalization, confi scation of assets and changes in legislation relating to local ownership.
Certain 2005 pro forma income statement items have been subject to minor adjustments compared with those published in Document E: reclassifi cation from net banking income to expenses (€62.7 million) for the Asset Management and Services divisions in order to harmonize the presentation standards of certain entities transferred with those of the Natixis Group; the transfer of other net banking income (€58.4 million) to Corporate and Investment Banking, mainly due to changes in the bank’s organizational structure since the publication of the 2005 pro forma fi nancial statements.
The cost/income ratio remained stable in relation to 2005 at 67.8%.
Natixis’ activities are organized into six core businesses: Corporate and Investment Banking, formed from the merging of Natexis Banques Populaires’ Corporate and Institutional Banking and Markets division’s activities with those of Ixis CIB and GCE Bail; Asset Management, which comprises the activities of Ixis Asset Management Group and Natexis Asset Management; Services, comprising six business lines: two business lines relating to transaction processing (Securities and Payments) and four business lines offering products and services distributed mainly by the retail banking network (Insurance, Sureties and Financial Guarantees, Consumer Finance and Employee Benefi ts Planning); Private Equity and Private Banking, with Natixis Private Equity (private equity) and Banque Privée Saint Dominique, Natixis Private Banking Luxembourg and Compagnie 1818 (private banking); Receivables Management with Coface, Natixis Factor and GCE Affacturage.
In addition to these core businesses, CIFG is a subsidiary dedicated to monoline insurance.
Comments on the methodology used: Each business line has its own average allocated capital.
Europe excluding France 2005 NET BANKING INCOME BY REGION 2006 NET BANKING INCOME BY REGION
This growth stemmed from the signifi cant increase in transactions with certain groups (France Telecom, Axa, Sanofi ) and the effects of tenders for bids won in 2005.
This growth related mainly to Financial Institutions, generating new loan production of €4 billion in 2006, an increase of 97% or €2 billion compared with 2005, relating primarily to the London offi ce (increase of €1.2 billion), which - in addition to a number of transactions with big-name clients - won a signifi cant number of new mandates (Reserve Bank, Merrill Lynch Int, Bears Sterns, Close Brothers, National Bank of Egypt).
FINANCIAL DATA6 Management report rising by 41% or €1.7 billion year-on-year to €5.8 billion, due to high oil prices (average price of $65 in 2006 versus $54 in 2005), large traders’ needs for facilities and major deals signed in the course of the year (Roseneftgas and Sonangol, Maurel & Prom etc.), as well as robust business among medium-sized traders.
Ixis Securities increased its market share signifi cantly in a stock market climate favored by the rise in European indices. However, due to weak volatility, the activity of certain investors was limited. Net banking income improved substantially both in France and abroad, particularly in Germany and the Benelux region. The bank is regularly recognized for the quality of its research, with 25 nominations in the “top three” of the 2006 Thomson-Extel Focus France survey. It is now ranked No. 3 broker in France. 2006 also saw the development of Ixis Midcaps, which was attributed the “Small & Midcaps Expert” label by Euronext.
Natixis Assurances’ assets under management increased by 15% thanks to commercial successes in 2005 and 2006 well above the average for the life insurance market. Gross premium infl ows increased by 34% in 2006, well above the rate of growth for French bancassurers (20%) and the French market (17%).
Average assets under management rose by $27.8 billion to $206.5 billion at end-2006, an increase of 15.6%, of which 9.4% relates to net new money and 6.2% to the market effect.
Including tax, net income was €1,542 million, an increase of 35% compared with 2005.
FINANCIAL DATA6 Management report extension of the identifi cation and management of defaults to all market activities; entering data into the national credit loss database of the Banque Populaire Group and the Pan-European Credit Data Consortium (PECDC); continuing efforts concerning the calculation of risk-weighted assets.
Breakdown of exposure at December 31, 2006 Breakdown of exposure by industry (Total exposure excluding minor subsidiaries and equity)
Ixis Corporate & Investment Bank’s market risk control is provided by the Market Risks division, which forms part of the Risk Management department. This division has full independence in establishing risk measurement principles and develops the corresponding tools autonomously. The team in charge of market risk control comprises four units corresponding to Ixis Corporate & Investment Bank’s main front offi ce business lines: credit, fi xed income, equities and equity derivatives, fi nancial engineering and project fi nance. Responsible for the monitoring of activities in the broad sense, these teams draw on the complementarity of risk analysis and results. They represent the division in its relations with each front offi ce and internally play the role of clients and users of risk and results systems.
It can be used to check that daily results (shown in the inverse scale) exceeded potential losses (as defi ned by the VaR indicator) on no more occasions than that permitted by the statistical limit (in this case, no more than four excursions beyond this limit are permitted for 250 data items).
Notional amounts of credit derivatives at December 31, 2006 (excluding intra-group transactions): Position / regulatory portfolio type (in € millions) Banking Trading Total
(12) “Shock” proposed by the banking regulator in the second pillar of the Basel II accord published in June 2004.(12) “Shock” proposed by the banking regulator in the second pillar of the Basel II accord published in June 2004.
Liquidity risk Short-term liquidity requirements are monitored on the basis of three factors: the liquidity ratio, with a target ratio of at least 120%; This is estimated daily by the Finance department on a company basis and monthly on a consolidated basis; current account limits: these limits are managed by the fi nancing committee, which comprises representatives of the main users, as well as the Treasury and Risk Management departments; stress scenarios: scenarios are updated once a month and presented to the ALM committee.
Hedging of variable-rate loans: Natixis uses vanilla interest rate lender swaps at fi xed rates to fi x future variable-rate borrowing costs (commercial loans, interbank loans, loans to subsidiaries and branches).
Natixis is not dependent on any patents, licenses or industrial, commercial or fi nancial sourcing agreements.
Capital stock increased in 2006 by 1,103,281 shares as a result of the payment of dividends in shares and by 93,284 shares following the exercise of stock options in the context of existing employee stock ownership plans. At September 30, capital stock therefore amounted to €803,072,720, divided into 50,192,045 shares each with a par value of €16.
The transfer of shares by CNCE and SNC Champion on November 17, 2006, increased capital stock by 73,131,476 shares to €1,973,176,336, comprising 123,323,521 shares each with a par value of €16. This was followed by a six-forone share split, bringing capital stock to 1,233,235,210 shares with a par value of €1.6.
In parallel with measures carried out with a view to carrying out the merger of Ixis CIB and Natixis before the end of 2007, the priorities of the Corporate and Investment Banking division have comprised: implementing structures and organizations to help realize synergies: sales and marketing organization focusing on cross-selling, thanks in particular to improved coverage, creation of global business lines, facilitating the pooling of development resources, identifying means of sharing operating costs in France and abroad; gradual designation of the key business line managers: appointment of eight area managers in early December 200 and 50 main line managers on December 22, 2006, with the aim of having all French employees in position by the end of April after the legal information and consultation process; the appointment of heads of the various offi ces outside France is progressing according to the same schedule. In
The integration of the Asset Management division complies with the business line development model, based on the confederal organization of all asset management companies in charge of marketing their own products to their established clients with the support of distribution platforms, particularly for international sales or enlarging the target customer base.
The target organizational structural shall be based on a crossfunctional IT department and an IT department in certain business lines, in particular for the Corporate and Investment Banking and Asset Management divisions. This responds to the objective of taking the specifi c characteristics of the various business lines into account while also attempting to pool resources as soon as this is possible.
On March 1, 2007, Euronext’s Expert Commission (Indices Committee) decided to include Natixis in the CAC Next20 index. This decision took effect from the trading session of March 19, 2007.
The Board has also been informed of the fi ndings of the Audit Committee and the main options selected, the control procedures in place and the summary of internal audit assignments.
Financial liabilities at fair value through profi t and loss 8.1 133,392 5,288 6,724
Consolidated net income - attributable to equity holders of the parent - per share, calculated on the basis of the average number of shares over the period excluding treasury shares and including potential shares arising from the exercise of stock options
Total net cash provided/(used) by fi nancing activities (C) (305) 1,404 (1,878)
The income statement for the year ended December 31, 2004 was prepared using IFRSs and their interpretations adopted by the European Union and applied from January 1, 2004, with the exception of IAS 32, IAS 39 and IFRS 4. As permitted by IFRS 1, Natixis elected not to adopt IAS 32, IAS 39 and IFRS 4 for its opening balance sheet at January 1, 2004. These standards were adopted for the fi rst time as of January 1, 2005. The 2004 comparative data affected by these standards are therefore based on the French GAAP previously used by Natixis in accordance with standards CRC 99-07 and 200004 of the Comité de la Réglementation Comptable.
The following terminology has been used for all of the fi nancial documents provided: 2004 IFRS: IFRS excluding IAS 32, IAS 39 and IFRS 4; EU IFRS: IFRS as adopted by a series of EU regulations, comprising IAS 1 to 41, IFRS 1 to 6 and their interpretations as adopted by the European Union as at December 31, 2006.
The consolidated fi nancial statements have been prepared in accordance with the measurement and presentation principles described in Notes 3 to 7 below.
For entities that are 40-50% owned, IAS 27 requires control to be demonstrated for these entities to be fully consolidated.
participation in the intra-group committees of the Banque Populaire group and Caisses d’Epargne group; Natixis’ right in connection with certain decisions made within BFBP and CNCE (Natixis’ opinion to be sought and the group to be consulted in its capacity as a non-voting director; Natixis’ right to a second deliberation of certain matters); Natixis’ right to receive information (information related to the CCIs; federal delegate and non-voting director reporting); Natixis’ right to the audit of Banque Populaires and Caisses d’Epargne; delegation of powers concerning the risk management function (defi nition of standards and risk assessment methods); exchange of management personnel.
Negative goodwill is recognized immediately in the income statement under “Changes in value of goodwill”.
All goodwill is assigned to a CGU so that it may be tested for impairment. The tests conducted by Natixis consist in comparing the carrying amount of each CGU (including goodwill) with value in use. Value in use is calculated by discounting free annual cash fl ows out to infi nity. The use of this method involves: estimating future cash fl ows. For the purpose of this estimate, Natixis has used the medium-term business plans prepared by the business lines; projecting out to infi nity the cash fl ows from year three at a rate refl ecting the expected annual growth rate; discounting the cash fl ows at an annual rate of return expected out to infi nity from listed stocks in the relevant sector.
AEW Advisors, Inc.(27) Asset Management 85 85 - - - -
AEW Management And Advisors, LP (27) Asset Management 85 85 - - - -
Credit Maritime Vie(43) Life insurance - - 100 100 100 100
Harris Associates Investment Trust(27) Asset Management 85 85 - - - -
Ixis Derivatives Inc.(27) Stock brokerage 100 100 - - - -
Natexis Funding Usa(31) Refi nancing 100 100 - - - -
Snyder Capital Management, Inc.(27)Asset Management 85 85 - - - -
Westpeak Investment Advisors, Inc.(27) Asset Management 85 85 - - - -
(2) Sold on September 26, 2005, with effect from June 30, 2005.
(14) Assets transferred to Spafi ca with retrospective effect as of January 1, 2005.
The scope of consolidation used for the purposes of preparing the pro forma fi nancial statements includes, aside from the Natixis group entities presented in section VII of the 2005 registration document entitled Financial Data, consolidated fi nancial statements, Note 4 .3 of the notes to the consolidated fi nancial statements for the fi nancial year ended December 31, 2005, the following entities and sub-groups: ■
As stated in Note III, the assets contributed to Natixis’ pro forma consolidated balance sheet have been included at their carrying amount in CNCE’s consolidated fi nancial statements restated in line with IFRSs as adopted in the European Union.
The amount outstanding and accrued interest not yet due were reclassifi ed, which increased the carrying amount of subordinated debt by €595 million at December 31, 2005 and by €599 million at December 31, 2006.
Lastly, tax effects were calculated and taken into account at the rates in force for all the aforementioned restatements that required it.
Net income for the period 936 185 (122) 999 725 505
Deferred income and accrued charges and other liabilities 8,489 12,798 21,287
Non-consolidated investments and equity securities held for investment: Non-consolidated investments are valued individually at the lower of cost and value in use at year-end. Value in use is determined on the basis of criteria such as restated net assets and profi tability.
Value adjustments and gains or losses on disposal of securities appear under different headings depending on the nature of the transaction: trading account securities, securities held for sale and equity securities held for investment: value adjustments and gains or losses are recorded in net banking income; debt securities held for investment: value adjustments and gains or losses are recorded under “impairment charges and other credit provisions” where they refl ect counterparty risk, and “net gains/(losses) on disposals of non-current assets” where they refl ect market risk or the result of disposal; investments in associates and other long-term equity investments: value adjustments and gains or losses are recorded under “net gains/(losses) on disposals of noncurrent assets”.
After initial recognition, they are measured at amortized cost using the effective interest method and tested for impairment on each reporting date. Where necessary, an impairment loss is recognized in income under “impairment charges and other credit provisions”.
A gain or loss arising from a change in the fair value of an available-for-sale fi nancial asset that is not part of a hedging relationship is recognized directly in “unrealized or deferred gains or losses”. Accrued or earned income is recognized directly in income using the effective interest method under “interest and similar income”. Available-for-sale fi nancial assets are tested for impairment at each balance sheet date. When there is objective evidence that the asset is impaired and a decline in the fair value of an available-for-sale fi nancial asset has already been recognized directly in equity, the cumulative loss that had been recognized directly in equity is removed from equity and recognized in income under impairment charges and other credit provisions in the case of fi xed-income
When a group of fi nancial assets is found to be impaired, the impairment loss is calculated on the basis of expected losses, in accordance with the provisions of the Basel II accord.
Hedging of a net investment in foreign currencies The hedging of a net investment in foreign currencies is used in the Ixis-CIB sub-group to hedge foreign currency risk linked to dividends in US dollars. This type of hedging follows the same accounting rules as those for cash fl ow hedges. The effective portion of changes in fair value of derivative fi nancial instruments classifi ed from an accounting standpoint as a hedge of net investment is recognized in equity, and the ineffective portion in income. Unrealized gains and losses recognized in equity are transferred to income when all or part of the net investment is sold.
Non-monetary items denominated in foreign currencies and measured at fair value are translated at the exchange rates when fair value is estimated. When a gain or loss on a nonmonetary item (e.g. available-for-sale fi nancial assets) is recognized directly in equity, any exchange component of that gain or loss is recognized directly in equity. Conversely, when a gain or loss on a non-monetary item (e.g. fi nancial assets measured at fair value through profi t and loss) is recognized in income, any foreign exchange component of that gain or loss is recognized in income.
Debt securities in issue are broken down into interbank market instruments, money market instruments and bonds. They do not include subordinated debt, which is identifi ed separately and dealt with below.
The change in liability recognized in income therefore corresponds to: incremental benefi t entitlements (expenses); benefi ts paid out during the period; interest cost on the opening liability (expenses); expected return on plan assets; amortization of actuarial gains and losses outside the corridor.
In line with IAS 32, fi nancial instruments issued are classifi ed as debt or equity depending upon whether or not they incorporate a contractual obligation to deliver cash to the holder.
The method of accounting for fees and commissions received in respect of services or fi nancial instruments depends on the end purpose of the services rendered and the method of accounting for the fi nancial instruments to which the service relates.
The majority of Natixis loans are variable-rate loans, and their fair value is determined on the basis of discounted future cash fl ows. The discount rate applied for a given loan is the rate that Natixis would grant at the balance sheet date to a counterparty
Net income attributable to equity holders of the parent (€ millions) 943 695 488
Average number of shares for earnings per share calculation 570,477,101 46,710,516 46,553,346
Jan. 1, 2006 Increase Decrease and other disposals Change in scope Exchange differences Other Cost
Hedging instruments include changes in the fair value of fair value hedges, including interest, plus the symmetrical revaluation of items hedged. It also includes the ineffective portion of cash fl ow hedges.
Net gains on other fi nancial assets and liabilities designated as at fair value 325 311 156
Ineffi ciency of the cash fl ow hedge (CFH) (2) 2
Gains or losses on sale 8 (15) (7) 9 (34) (25) 0 (10) (10)
Other net income 92 74 70 9.5.3 - Other related income and expenses
Collective provisions for performing loans (203) 164 (39) (100) 63 (37) 6
The risk management department proposes a risk management policy conforming to the policy adopted by its two shareholder groups for validation by the Management Board.
Upon the creation of Natixis, the capital market activities that were previously part of Natexis Banques Populaires and Ixis Corporate & Investment Bank were pooled. They were combined to form the corporate and investment banking unit in the capital markets business line. The market risk organization and management principles applied within Ixis Corporate & Investment Bank and Natixis were thus retained, while a merger process aimed at implementing the procedures described below was initiated. The overall consistency of procedures and their development are ensured by the centralization of key decisions.
Upon Natixis’ creation, market risk measurement and follow-up were harmonized through use of a single calculation tool: Scénarisk, a system already in place at Ixis Corporate & Investment Bank. To monitor compliance with the VaR limit set by the regulator, Natixis’ risk management department produces the VaR for Natixis combining the portfolios of the former Natexis Banques Populaires (trading and available-for-sale) and those of Ixis Corporate & Investment Bank and Ixis Capital Markets North America. The market transactions entered into within the scope of the former Natexis Banques Populaires are integrated based on sensitivities provided by the front-offi ce management systems in force. After choosing target front offi ce management systems, the VaR calculation is refi ned to take account of the convexity of Natixis’ positions.
Natixis’ risk measurement methodology (scope of the former Natexis Banques Populaires)
Currency risk is hedged within the VaR limits set by business lines. Structural currency risk is reported to the balance sheet management committee.
The group’s total theoretical outstandings amount to €332 billion, comprising €309 billion for credit, €14 billion for guarantees and €9 billion for investment and single risks.
The main actuarial assumptions made as at December 31, 2006, are as follows: Supplementary pensions
Share of income of associates 59 3 1 0 1 0 64
Available-for-sale fi nancial assets 27,365 2,067 1,865 44 90 (288) 31,143
If the fi nancial conditions of a commitment are below market conditions, a discount is recognized in expenses, with a
Loans and advances to customers (L&R) 26,949 25,599 10,883 14,537 14,282 1,119 93,369
Messrs Dupont and Ladam of Natixis belong to the supplementary group pension scheme open to all executive offi cers of the Banque Populaire group, in accordance with the provisions of the status accorded to this category.
In accordance with the requirements of Art. L. 823-9 of the French Commercial Code (Code de commerce) relating to the justifi cation of our assessments, we draw your attention to the following matters: Assessment of the accounting treatment of transfers of assets
FINANCIAL DATA 6 Financial data Parent company fi nancial statements and notes
CIFG HOLDING 31, rue de Mogador, 75009 Paris 450,078 EUR 44,237 EUR 100.00%
Income after tax, but before depreciation, amortization and provisions 6.62 5.06 5.24 7.30 0.51
Without qualifying our opinion, we draw your attention to paragraph 17 of the section on accounting policies and valuation methods in the notes to the fi nancial statements concerning changes in accounting methods.
Authorization of the framework agreement between Natexis Bleichroeder and Natixis formalizing the implementation of counter-guarantee demands
The counter-guarantee granted from December 6 to December 12, 2006, amounted to €586,950,000. This gave rise to the payment of a commission fee of €9,782.50 by Natexis Bleichroeder.
The various measures taken in prior years were continued in 2006: around 1,500 employees underwent training in money laundering issues, including 655 at the parent company.
In 2006, the Information Systems Security department enhanced its checks of new IT projects in order to ensure correct integration of the bank’s security policy during the project conception phase.
The aim of this project was to develop the tools necessary for continual detection of attacks on the bank’s information system and to monitor use of company resources by implementing tracing and investigation systems (security monitoring, checks of the opening of information systems to external parties, clearance checks and verifi cation of compliance of workstations with security standards, supervision of security equipment etc.).
A delegatory framework has also been set up in order to ensure the fl uidity of decisions between committee meetings.
Ixis CIB’s interest rate risk is governed by a VaR limit and associated behavioral limits that are monitored on a daily basis (see market risk monitoring).
Ixis CIB has chosen to fi nance its foreign currency liabilities through borrowings in the corresponding currency. The position exposed to structural interest rate risk is therefore entirely in euros, excluding the foreign currency margin, which is subject to specifi c management.
Ixis Capital & Investment Bank and Ixis Asset Management, the largest entities transferred to Natixis by the Caisse d’Epargne Group, each deployed a structure for the monitoring and management of operational risk. These structures are similar and characteristic of those deployed in other areas.
This is ensured by: a specifi c structure comprising a Compliance & Risk Management team within Ixis AM, Operational Risk offi cers within the bank’s subsidiaries and committees (Audit or Compliance & Risk Management); an Ixis AM Operational Risk policy, applied within all entities.
The implementation of regular monitoring of statements also reduced the time taken to prepare the fi nancial statements for the fi rst half of 2006. The 2006 full-year statements are unusual due to the recent creation of Natixis.
In accordance with the provisions of article L.225-68 of the French Commercial Code, the Chairman is required to report on the company’s corporate governance system and its internal control procedures.
On the basis of our investigations, we have no particular comment to make on the information and statements with respect to internal control over the fi nancial reporting process contained in the Chairman’s report, prepared in accordance with article L.225-37 of the French Commercial Code.
In accordance with the applicable legal and regulatory provisions, shareholders may send in their proxy forms and postal voting forms either in paper form, or, upon a decision of the Management Board published in the notice of meeting, by electronic means. The Management Board may also decide that shareholders may take part in and vote at any general meeting by videoconferencing or electronic means under the conditions provided by the regulations.
For information, as required by law, dividends paid in the previous three years were as follows: ■
Subject to the existence of distributable profi ts and reserves and the applicable prudential rules, and save in exceptional circumstances, BFBP and CNCE are committed (i) to proposing to every general meeting of shareholders convened for the purpose of approving the fi nancial statements of Natixis a distribution of dividends in an amount at least equal to 50% of the net consolidated profi t in respect of each fi nancial year (50% of the net pro forma profi t for the fi nancial year 2006) and (ii) to voting in favor of such a distribution at general meetings of Natixis shareholders.