BPCE - 2019 Universal Registration Document

5

FINANCIAL REPORT

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

12.5

INTERESTS IN NON-CONSOLIDATED STRUCTURED ENTITIES NATURE OF INTERESTS IN NON-CONSOLIDATED

management, securitization vehicles, entities created for structured financing purposes, and entities created for other types of transactions. Asset Management Financial asset management (also known as portfolio management) consists of managing equity or funds entrusted by investors by investing in equities, bonds, cash SICAV or hedge funds, etc. The asset management line of business which uses structured entities is represented by collective investment management or fund management. More specifically, it encompasses collective investment vehicles within the meaning of the French Monetary and Financial Code (other than securitization structures) as well as equivalent bodies governed by foreign law. These notably include entities such as UCITS, real estate funds and private equity funds. Securitization Securitization transactions are generally established as structured entities in which assets or derivatives representing credit risk are isolated. These entities serve to diversify the underlying credit risks and to split them into various levels of subordination (tranches) with a view, generally, to sell them to investors seeking a certain level of return, according to the degree of risk accepted. These vehicles’ assets and the liabilities that they issue are rated by the rating agencies, which monitor that the level of risk associated with each tranche of risk sold is commensurate with the attributed rating. The kind of securitization transactions used and which require the intervention of structured entities are as follows: transactions where the Group (or a subsidiary) sells on its own • behalf to a dedicated vehicle, in cash or synthetic form, the credit risk associated with one of its asset portfolios; securitization transactions performed on behalf of third parties. • These transactions consist of housing in a dedicated structure (generally a Special Purpose Entity (SPE)) the assets belonging to another company. The SPE issues shares that can, in certain cases, be subscribed for directly by investors, or subscribed for by a multi-seller conduit which refinances the acquisition of these shares through the issue of short-term notes (commercial paper). Structured financing (of assets) Structured financing covers the range of activities and products set up to provide financing to economic players while reducing risks through the use of complex structures. These include the financing of movable assets (pertaining to aeronautic, marine or terrestrial transport, telecommunications, etc.), real estate assets and the acquisition of targeted companies (LBO financing). The Group may need to create a structured entity that houses a specific financing transaction on behalf of a customer. This is a contractual and structural organization. The particularities of these types of financing are related to risk management, with the use of notions such as limited recourse or waivers of recourse, standard and/or structural subordination and the use of dedicated legal vehicles used in particular to carry a single-contract finance lease representing the financing granted. Other activities This comprises all remaining activities.

12.5.1

STRUCTURED ENTITIES A non-consolidated structured entity is a structured entity that is not controlled and is therefore not accounted for using the full consolidation method. As a result, the interests held in a joint venture or associate which is classed as a structured entity falls within the scope of this note. The same is true of controlled structured entities that are not consolidated due to holding threshold reasons. This includes all structured entities in which BPCE SA group holds an interest and intervenes in one or more of the following capacities: originator/structurer/arranger; • placement agent; • manager; and • in any other capacity that has a major impact on the • structuring or management of the transaction (e.g. provision of financing, guarantees or structuring derivatives, tax investor, major investor, etc.). An interest in an entity corresponds to all types of relationships, contractual or not, that expose BPCE SA group to a risk of fluctuations in returns relating to the entity’s performance. Interests in another entity may be evidenced by, among others, the holding of equity instruments or debt securities, as well as, by other types of relationships, such as financing, short-term credit facilities, credit enhancement, the provision of guarantees or structured derivatives. As a result, the following are not included in the scope of this note: structured entities which are associated with BPCE SA group • through a current transaction alone. This corresponds to an unstructured financial instrument which generally does not have a material impact on the variability of the structured entity’s returns and which could be concluded by BPCE SA group with structured entities or classically governed entities alike. The main kinds of current transactions are: plain vanilla fixed income, foreign exchange and other – underlying derivatives, as well as securities lending/borrowing and repurchase transactions, plain vanilla guarantees and financing granted to family – non-trading real estate companies (SCI) or to certain holdings; external structured entities in which BPCE SA group simply • acts as an investor. These notably include: investments in external UCITS that the Group does not • manage, except for those in which the Group owns almost all the shares; a limited scope of interests held in securitization vehicles • (exposures on these funds are included in the information published in Chapter 6 “Risk Management – Securitizations”); and interests held in external real estate funds or private equity • funds in which Groupe BPCE acts as a simple minority investor. The structured entities with which the Group has a relationship can be divided into four categories: entities involved in asset

478

UNIVERSAL REGISTRATION DOCUMENT 2019 | GROUPE BPCE

www.groupebpce.com