NATIXIS - 2018 Registration document and annual financial report

RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk management

Meanwhile, the ECB halted its quantitative easing (QE) bond-buying program in December, as expected. However, the €2,600 billion stockpile of government and corporate bonds held by the ECB will be maintained since the central bank is committed to reinvesting cash from maturing debt for an indefinite period. On the European credit market, core banks’ senior unsecured spreads trended upwards throughout the year with an acceleration from November onwards. The banks’ significant refinancing needs in 2019, particularly in anticipation of the maturity of the first TLTRO II bonds in June 2020, explain the widening of spreads. The spread on five-year senior unsecured debt issued by French banks ended the year at Euribor3M +56 bp, an increase of +41 bp. The non-preferred debt (MREL/TLAC eligible) for these same banks was less resilient, with the spread widening +70 bp. In these market conditions, Natixis raised a gross total of €17.6 billion in funding in 2018 (excluding self-held securities) under its medium- and long-term refinancing program. As the only long-term issuer in the public issues segment, BPCE provided Natixis with financing for a total euro-equivalent amount of €4.8 billion.

Long-term funding In 2018, the Fed was able to make four 25 bp increases in key rates on the back of the strength of the US economy (2018 growth expected to reach 2.9% and inflation 1.9%). Long-term rates (10Y US Treasuries) were on an upward path from the start of the year and reached a high of 3.24% in early November (+83 bp) before ending the year down at 2.68%. This fall at the end of the year reflects the markets’ expectations of a slowdown in the global economy in the coming months against a backdrop of US-China trade disputes. Recent macroeconomic figures for December confirm this downward trend, with the China Manufacturing PMI at 49.7 (a reading below 50 means that activity is contracting) and the US Manufacturing ISM index at 54.1 (vs. 59.3 in November). In Europe, attention has been focused on Prime Minister Theresa May’s negotiations over Britain’s departure from the European Union. The Brexit issue is still uncertain. Italy was also a central focus after the new Italian government submitted a 2019 budget showing a deficit in excess of -2% (vs. the -0.8% announced by the previous government). The 10Y Bund-BTP spread, which was 162 bp at the start of the year, closed at 252 bp in 2018.

3

ISSUES AND OUTSTANDINGS OF NATIXIS’ MEDIUM- AND LONG-TERM DEBT ISSUANCE PROGRAMS R

EMTN 8,748 16,885

NEU MTN

US MTN

Bond issues

(in millions of euros or euro equivalents)

Issues at 31/12/2018

510 694

70

4,548

Outstandings at 31/12/2018

214

10,146

Structural foreign exchange risk 3.2.7.3 (Data certified by the Statutory Auditors in accordance with IFRS 7)

“structural” foreign-exchange position that is restated for translation adjustments when it purchases foreign currencies to fund strategic long-term net investments in foreign entities, while non-strategic net investments in local currencies are funded with loans. Monitoring system The CET 1 ratio’s sensitivity to exchange rate fluctuations is regularly assessed by the ALM Committee.

Targets and policy

Given the presence of risk-weighted assets in foreign currencies (mostly USD), the aim of Natixis’ structural foreign exchange risk policy is to protect the Common Equity Tier 1 ratio (CET 1) against exchange rate fluctuations. To this end, it establishes a

STRUCTURAL FOREIGN EXCHANGE POSITION R

Structural change

Position at market opening

(01/01/2018) Position at market close (31/12/2018)

(in billions of euro equivalents)

USD AUD GBP DZD SGD CNY HKD BRL RUB

4,565

4,313

211

234 202 184

99

154

99 60 89 46 45 18 52

94 60 55 46 39 29 47

JPY

Other

TOTAL

5,438

5,303

151

Natixis Registration Document 2018