BPCE_REGISTRATION_DOCUMENT_2017

RISK REPORT Securitization transactions

Resecuritization: a securitizationin which the credit risk associated with a portfolio of underlying assets is divided into tranches and for which at least one of the underlying asset exposures is a securitization position. Tranche: a fraction of the credit risk set out contractuallyand which is associatedwith an exposureor exposures. Securitization position: exposure to a securitization transaction or arrangement. Liquidity line: the securitizationposition resulting from a financing agreement aimed at ensuring the punctuality of payment flows to investors. Originator: either an entity which, 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-balancesheet exposures and then securitizes them. Sponsor: an entity, other than the originator, that establishes and manages an asset-backed commercial paper program, or other securitization operation or arrangement that securitizes exposures purchased from third-party entities. Investor: the Group’s position when it holds securitizationpositions in which it has invested, but in which it does not act as originatoror sponsor. These are mainly tranches acquired in programs initiated or managed by external banks. 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, which mostly comprises investment grade EuropeanRMBS; residual Natixis workout portfolio management 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 € 1.2 billion, mostly in the Consolidated Management of Investments (GCI) business line. This portfolio’s investment objectiveis to generate recurringincome or unrealizedcapital. NJR is a GCI subsidiary that invests mainly in securitizedassets eligible for CentralBank refinancing and inreal estate. The various relevant portfoliosare speciallymonitoredby the entities and subsidiaries, and by the central institution. Depending on the scope involved, dedicated management or steering committees regularly review the main positionsand managementstrategies. The central institution’s DRCCP regularly reviews securitization exposures (quarterly mapping), changes in portfolio structure, risk-weighted assets and potential losses. Regular assessments of potential losses are discussed by the Umbrella Committee, as are disposal opportunities.

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” when that is their original category. For synthetic securitizationtransactions,assets are not derecognized as long as the institution retains control over them. The assets continue to be recognized in accordance with their original classificationand valuationmethod. Any impairmentof said assets is reviewed if riskis transferred. 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 described in Note 3 “Consolidationprinciples and methods” to the consolidatedfinancial statements. TERMINOLOGY Conventionalsecuritization: this consists of the transfer to investors of financial assets such as loans or receivables, transforming these loans into financialsecuritiesissued on the capital market via special purpose vehicles. Synthetic securitization: in a synthetictransaction,ownershipof the asset is not transferredbut the risk is transferredthrough a financial instrument, i.e. the credit derivative. MANAGEMENT OF SECURITIZATION AT GROUPE BPCE Banking book EAD amounted to € 14.2 billion at December 31, 2017 (down € 4.2 billion year-on-year). The positions were mainly carried by Natixis ( € 9.9 billion) and BPCE ( € 4.5 billion, positionsarising from the transferof a portfolioof home loan and public asset securitizations from Crédit Foncier in September2014). The decreasein EAD was mainly due to workoutportfolioactivitiesat BPCE SA (- € 1.4 billion) and Natixis(- € 0.8 billion). Outstandings comprising the workout portfolio 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 activelyreducingpositionsunder acceptable pricing conditions. Note: Crédit Foncier’s securitization positions, which boast solid credit ● quality, were sold to BPCE at their actual value, with no impact on the Group’s consolidated financial statements (over 90% of the securitizationportfolio was transferred to BPCE on September 25, 2014). These exposures are recognized in loans and receivables (“L&R”) and do not present a significantrisk of loss at completion, 3.7.2

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Management of securitization at Groupe BPCE

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Registration document 2017