NATIXIS - 2018 Registration document and annual financial report

3 RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk factors

may require Natixis to bear more credit risk and market risk associated with such assets for a longer period than initially anticipated. The absence of liquidity in the secondary markets for such assets may require Natixis to reduce its origination activities, which would impact revenues and could affect its relations with customers, which in turn could adversely affect its results and financial position (see Section 4.2.1 of this registration document). Furthermore, depending on market conditions, Natixis may have to recognize a value adjustment on assets likely to adversely affect its results.

Changes in the fair value of Natixis’ securities, derivatives portfolios and its own debt could have a negative impact on the carrying value of such assets and liabilities, and thus on its net revenues, net income and shareholders’ equity The carrying values of Natixis’ securities and derivatives portfolios and certain other assets, as well as its own debt, are adjusted as of each financial statement date (for additional valuation adjustments, see Note 6 “Accounting principles and valuation methods” in Chapter 5.1 “Financial Statements” of this registration document). The valuation adjustments include a component that reflects the credit risk inherent in Natixis’ own debt. The additional fair value adjustments for the derivatives portfolios take into account, in particular, the credit quality of the counterparty for the derivatives portfolios shown on the asset side of Natixis’ balance sheet and the fact that Natixis may fail to recover some or all the market value of these portfolios. Most of the adjustments are made on the basis of changes in fair value of the assets or liabilities during an accounting period, with the changes recorded either in the income statement or directly in Natixis’ shareholders’ equity. Changes that are recorded in the income statement, to the extent not offset by opposite changes in the fair value of other assets, affect net revenues and, as a result, net income. In some cases, the value adjustments have a direct impact on shareholders’ equity. More generally, value adjustments may be required as a result of inherent uncertainty in the models and parameters used in the valuation of Natixis’ financial instrument portfolios. This is particularly true where instruments are complex or do not have publicly quoted market prices, and valuation is based on internally generated or otherwise non-standard modeling that ultimately relies to some degree on Natixis’ estimates and judgment. These value adjustments may have a negative impact on net revenues and thus on net income. Natixis’s access to certain forms of financing may be adversely affected in the event of a financial crisis or a downgrade of its rating or that of the Group Since 2011, Natixis’ funding structure has relied on a Joint Refinancing Pool shared by Natixis and BPCE. Natixis obtains a portion of the funding for its activities from Groupe BPCE through the public and private issuance of medium- and long-term vanilla debt (senior and subordinate) by BPCE SA. Natixis is the medium- and long-term issuer for the Group for structured private sector refinancing transactions. If the credit ratings of BPCE and thus of Natixis were downgraded by major rating agencies, or if BPCE were to experience difficulties in obtaining financing in the markets, the liquidity of Groupe BPCE, and thus of Natixis, and the corresponding cost of funding could be adversely affected. In addition, in the event of another crisis affecting the financial markets and/or the banking sector or adverse trends in market conditions, Natixis’ financial position in terms of CET1 (as defined in the glossary to the registration document) and leverage, its balance sheet and its results could be adversely affected.

FINANCIAL RISKS

A deterioration in the financial markets could generate significant losses in Natixis’ capital markets activities As part of its capital markets activities and to meet its clients’ needs, Natixis is active on the financial markets, particularly the debt, forex, commodity and equity markets. In recent years, the financial markets have fluctuated significantly in a sometimes highly volatile environment and could do so again; this could result in significant losses for capital markets activities. Furthermore, 2018 was marked by the return of volatility due to numerous uncertainties related to global growth trends, trade tensions between the United States and China, and Brexit. The losses that may be recorded due to high market volatility could affect several market products in which Natixis trades. The volatility of financial markets makes it difficult to predict trends and implement effective portfolio management strategies; it also increases the risk of losses from net long positions when prices decline and, conversely, from net short positions when prices rise. The market risk associated with the Corporate & Investment Banking business line activities represented 8.2% of Natixis’ total RWA at December 31, 2018 (see Section 3.3.1.4 of this registration document). The hedging strategies implemented by Natixis do not eliminate all risk of loss Natixis could suffer losses if any of the instruments and hedging strategies it uses to hedge the various types of risk to which it is exposed prove ineffective. Many of these strategies are based on observation of historical market behavior and historical correlation analysis. For example, if Natixis holds a long position in an asset, it could hedge the risk by taking a short position in another asset whose past performance has allowed it to offset the performance of the long position. However, in some cases, Natixis may only be partially or inadequately hedged, or its strategies may not fully hedge future risks or effectively reduce risk in all market configurations, or may even cause an increase in risks. Any move in the market in a direction or manner contrary to Natixis’ expectations could also reduce the effectiveness of these hedging strategies and expose Natixis to potentially significant losses. In addition, the method used to recognize gains and losses resulting from certain ineffective hedges may increase the variability of Natixis’ reported earnings.

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Natixis Registration Document 2018