BPCE - 2019 Universal Registration Document

FINANCIAL REPORT

IFRS CONSOLIDATED FINANCIAL STATEMENTS OF BPCE SA GROUP AS AT DECEMBER 31, 2019

The table below provides the main unobservable inputs and the value ranges for these instruments:

Unobservable data ranges min-max

Instrument class

Main types of products

Valuation techniques used

Main unobservable data

Interest rate options valuation models

Interest rate derivatives

Sticky CMS/Volatility Bonds Callable Spread Options and Corridor Callable Spread Options

Mean reversion inputs

[2.5%; 5%]

Model representing several yield curve factors

Interest rate derivatives

Mean reversion spread [0%; 30%] EUR 30%, USD 25%

Adjusted Hull & White one-factor model

Interest rate derivatives

Bermuda Accreting

Accreting Factor

[75%; 95%]

Interest rate options valuation models

Interest rate derivatives

Volatility caps/floors

Interest rate vol

[5%; 80%]

Equity vol Fund vol

[0.392%; 117.23879%]

[20%; 25%]

Different valuation models for equity, equity basket or fund options Exchange rate option valuation models Hybrid currency/interest rate options valuation model The default rates are based on the market prices of the underlying PFI bonds and the recovery rates are based on historical ratings agency data Discounted expected cash flows based on early redemption assumptions on the underlying portfolio Hybrid models coupled with equity, forex and interest rate diffusion

Stock/stock correlation Repo of general baskets

[0.3%; 94.1%] [-0.67%; 0.90%]

Simple and complex equity, equity basket or fund derivatives

Equity

Forex

Exchange rate derivatives

Currency vol

[2.12%; 13.27%]

Correlation between foreign exchange rates and interest rates as well as long-term volatility levels Correlation between the assets, base spread between the cash asset and derivative asset, recovery rate

Exchange rate and interest rate correl: [15%; 50%] Long-term volatility: [3.15%; 13.27%]

Forex

Long-term PRDC/PRDKO/TARN

Credit

CDOs

80%

Securitization swaps

Prepayment rate

5.1% to 24% [-55.5%; 71%] [-45%; 40%]

Credit

5

Equity-FX correlations Equity/FI correlations

Hybrid equity/fixed income/forex (FX) derivatives Helvetix: Strip of long-term options, Strip of quanto options, Strip of digital options Helvetix: Options spread and digital options spread

Hybrids

FI-FX correlations

[-40.2%; 26.55%]

Black & Scholes model

EURCHF/EURUSD correlations Long-term USD/CHF & EUR/CHF volatility

[26%: 40%]

USDCHF vol: [2.54%; 11.07%] EURCHF vol: [3.1%; 8.69%]

Forex

Gaussian copula

Policy concerning fair value hierarchy transfers Transfers between fair value levels are reviewed and validated by ad hoc committees at Natixis comprising representatives of various functions, particularly Finance, Risk and Business Lines. The committees consider various indicators of market activity and liquidity as described in the General Principles. A review is undertaken for any instrument that ceases to meet these criteria or once again complies with the criteria. Transfers to and from Level 3 must be approved in advance. In fiscal year 2019, the main reclassifications involved accreting Bermudan swaptions (in euros and in Australian dollars), specific complex derivatives with single or multiple underlyings structured on indexes and the associated liabilities designated at fair value. These instruments are reclassified from Level 2 to Level 3 of the fair value hierarchy due to an examination of observability during the period which prompted us to note the absence of observable prices for the corresponding inputs and products, leading to their reclassification to Level 3 of the fair value hierarchy.

Note: at December 31, 2018, a portfolio of derivatives in Asia was transferred to Level 3 in the fair value hierarchy. These were products indexed to the worst performance of an underlying basket of shares (indices and shares) that allow investors to receive enhanced periodic coupons in return for a risk of loss of capital at maturity, with the possibility that the product may expire early. The outstandings in question had a fair value of €130 million recorded on the asset side of the balance sheet at December 31, 2018. The bearish market in Asia revealed the limitations of the business model associated with these products and led to the supplementing of the reserve mechanism by introducing an additional reserve to allow for the model’s shortcomings. As this reserve requires judgment (specifically the anticipation of changes in market conditions, portfolio behavior, etc.), the valuation of the products to which it relates is no longer directly observable. As a result, they have been transferred to fair value Level 3 from Level 2, where they were classified previously, due to the observable nature of the inputs, the model used and the liquidity observed.

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UNIVERSAL REGISTRATION DOCUMENT 2019 | GROUPE BPCE