BPCE - 2018 Registration document

6 RISK REPORT

Securitization transactions

TERMINOLOGY Traditional securitization: this consists of the economic transfer to investors of financial assets such as loans or receivables, transforming these loans into financial securities issued on the capital market via SSPEs (securitization special purpose entities). Synthetic securitization: in a synthetic transaction, ownership of the asset is not transferred but the associated risk is transferred through a financial instrument such as a credit derivative. Resecuritization: a securitization in which the credit risk associated with an underlying pool of exposures is tranched and at least one of the underlying exposures is a securitization position. Tranche: a contractually established segment of the credit risk Liquidity facility: the securitization position arising from a contractual agreement to provide funding to ensure timeliness of cash flows to investors. Originator: either an entity which, itself or through related entities, directly or indirectly, was involved in the original agreement which created the obligations or potential obligations of the debtor or potential debtor giving rise to the exposure being securitized on its own or through affiliates, was directly or indirectly involved in the original agreement which created the obligations of the debtor or potential debtor and which gave rise to the securitization transaction or arrangement; or an entity that purchases a third party’s on-balance sheet exposures and then securitizes them. Sponsor: an institution other than an originator institution that establishes and manages an asset-backed commercial paper program or other securitization scheme that purchases exposures from third-party entities. Investor: the Group’s position when it holds securitization positions in which it has invested, but in which it does not act as originator or sponsor. These are mainly tranches acquired in programs initiated or managed by external banks. Note: Crédit Foncier’s securitization positions, which boast solid credit ● quality, were sold to BPCE at their balance sheet value, with no impact on the Group’s consolidated financial statements (over 90% of the securitization portfolio was transferred to BPCE on September 25, 2014). These exposures are recognized in loans and receivables (“L&R”) and do not present a significant risk of loss on completion, as confirmed by the external audit carried out at the time of the transfer. This audit confirmed the robustness of the quarterly internal stress test carried out and the credit quality of the securitization portfolio, consisting predominantly of European Investment Grade RMBS; residual Natixis workout portfolio positions, transferred at ● end-June 2014 to the Corporate & Investment Banking division, are managed on a run-off basis; BRED also holds investments in securitization vehicles outside ● Groupe BPCE in the form of debt securities amounting to € 1.3 billion, mostly in the Consolidated Management of Investments (GCI) business line. This portfolio’s investment objective is to generate recurring income or unrealized capital. NJR is a GCI subsidiary that invests mainly in securitized assets eligible for Central Bank refinancing and in real estate. associated with an exposure or number of exposures. Securitization position: an exposure to a securitization.

In accordance with IFRS 9, securitized assets are derecognized when Groupe BPCE has transferred substantially all of the risks and rewards of ownership of the asset. If the Group transfers the cash flows of a financial asset but neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset, and has not retained control of the financial asset, the Group derecognizes the financial asset and then recognizes separately, if necessary, as assets or liabilities any rights and obligations created or retained in the transfer. If the Group retains control of the financial asset, it continues to recognize the financial asset to the extent of its continuing involvement in the financial asset. When a financial asset at amortized cost or at fair value through other comprehensive income is fully derecognized, a gain or loss on disposal is recorded in the income statement. The amount is equal to the difference between the carrying amount of the asset and the value of the consideration received, corrected for impairment, and where applicable for any unrealized profit or loss previously recognized directly in other comprehensive income. Given the relatively low value of the assets in question and relative infrequency of securitization transactions, assets pending securitization continue to be recognized in their original portfolio. Specifically, they continue to be recognized under “Loans and receivables due from customers at amortized cost” when that is their original classification. For synthetic securitizations, assets are not derecognized as long as the institution retains control over them. The assets continue to be recognized in accordance with their original classification and valuation method. Consolidation or non-consolidation of securitization vehicles is analyzed in accordance with IFRS 10 based on the institution’s ties with the vehicle. These principles are reiterated in Note 3.2.1 to the financial statements - “Entities controlled by the Group”. Banking book EAD amounted to € 14.9 billion at December 31, 2018 (up € 0.7 billion year-on-year). The positions were mainly carried by Natixis ( € 10.2 billion) and BPCE ( € 3.3 billion, positions arising from the transfer of a portfolio of home loan and public asset securitizations from Crédit Foncier in September 2014). The EAD increase can primarily be attributed to: the business lines comprising Natixis’ roll-out plan (+ € 1.8 billion), ● and particularly sponsoring and origination; the decrease in exposures comprising BPCE SA group’s workout ● portfolio (- € 1.1 billion). The workout portfolio exposures of the Corporate & Investment Banking division (formerly GAPC – workout portfolio management) and BPCE are managed under a run-off method, whereby positions are gradually amortized but still managed (including disposals) in order to safeguard the Group’s interests by actively reducing positions under acceptable pricing conditions. 6.7.2

Securitization management at Groupe BPCE

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Registration document 2018