NATIXIS - 2018 Registration document and annual financial report

RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk management

SECURITIZATION TRANSACTIONS 3.2.4

External rating system 3.2.4.2 (Data certified by the Statutory Auditors in accordance with IFRS 7) Natixis relies on four external rating agencies for securitization transactions: Moody’s, DBRS, Fitch IBCA and Standard & Poor’s. Securitization vehicles 3.2.4.3 Natixis acts as sponsor in ABCP-type securitization transactions through three vehicles, namely Versailles, Bleachers and Magenta. Of these vehicles, only two are consolidated in Natixis’ scope of regulatory consolidation: Versailles and Bleachers/Mountcliff. For both vehicles, Natixis plays a predominant role in the selection and management of acquired receivables as well as the management of the issuance program, thus giving it power over the conduits’ relevant activities and influence over the amount of their returns. In contrast, given that Natixis is not part of the governing body holding the power to decide on Magenta's relevant activities, this conduit is not consolidated in Natixis’ regulatory consolidation scope. Targets and policy 3.2.5.1 (Data certified by the Statutory Auditors in accordance with IFRS 7) The Risk Division places great importance on the formal definition of all risk policies governing market transactions based on both a qualitative and forward-looking analysis. This approach is mainly based on the strategic review of global risk budgets, business targets and market trends and relies on a proactive early warning system for the most sensitive areas at risk. These market risk policies focus on a set of methodological principles in terms of risk monitoring and supervision and provide a matrix approach to businesses by asset class and management strategy. Organization of market risk 3.2.5.2 management (Data certified by the Statutory Auditors in accordance with IFRS 7) Market risk control is based on a limit authorization structure that is overseen by the Global Risk Committee and in which the Market Risk Committee, chaired by the Chief Executive Officer or the delegated representative, plays an essential role. The Risk Division: defines risk measurement and fair value adjustment methods, a then submits them to the Market Risk Committee for validation; examines annual limit reviews (including risk appetite) and a ad hoc requests for modifications (VaR, stress tests, operational indicators, loss alerts); provides alerts for areas at risk relating to the business lines or a to Natixis' Senior Management; MARKET RISKS 3.2.5

General policy 3.2.4.1 (Data certified by the Statutory Auditors in accordance with IFRS 7) Natixis has securitized assets on its acquired balance sheet: as an investor, through transactions for its clients, through a derivative transactions and, to a marginal degree, through its market-making activity on certain ABS (particularly Asset-Backed Commercial Paper); as a sponsor, i.e. on transactions for its clients to create and a manage ABS programs; as an originator, i.e. as part of its refinancing activities when a Natixis securitizes certain portfolios of loans granted to customers. This activity is conducted under Natixis’ general “Originate-to-Distribute” strategy. Natixis mainly invests in assets with high levels of collateral, spreads and seniority. Natixis also applies a sector-specific and geographic diversification strategy to underlying assets. Natixis’ credit decision-making process is followed for all securitization transactions. Three criteria are considered, namely the amount, maturity and (external) rating. For every structured arrangement subject to approval, a substantiated request and a description of the arrangement, collateral, seller/originator and the proposed tranching must be submitted, along with an analysis of the associated guarantees. A counter-analysis is then carried out by the Risk division and, if necessary, a quantitative analysis of the portfolio’s default risks. Transactions are examined, and decisions are made based on all the loan application’s parameters, including the expected profit margin on the loan, the capital burn and compliance with the current risk policy. Like vanilla finance transactions, securitization structures and transactions are reviewed at least once a year, while transactions on the watchlist are re-examined at least once a quarter. Natixis manages the risks associated with securitization positions through two mechanisms. the first involves the daily identification of all rating a downgrades affecting BPCE’s securitization positions as well as the associated potential risks and, if necessary, deciding on an appropriate course of action; The second is underpinned by a quantitative (ratings, a valuations) and qualitative analysis of securitization positions for the purpose of segmenting the portfolio on the basis of risk levels. The results of these analyses are written up and discussed in a quarterly presentation at the meeting of the Watchlist and Provisions Committee. Furthermore, the liquidity risk is managed as part of the global monitoring of the Group’s activities, particularly with the help of ALM indicators subject to limits, such as liquidity gaps and hedging ratios.

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Natixis Registration Document 2018