NATIXIS_PILLAR_III_2017_EN

GOVERNANCE AND RISK MANAGEMENT ORGANIZATION Risk factors

Natixis’ ability to attract and retain qualified employees is critical to the success of its business and failure to do so may significantly affect its performance Natixis’ employees are one of its most important resources and across the financial services industry, competition to attract qualified employees is intense. Natixis’ results depend on its ability to attract new employees and to retain and motivate existing employees. Increased competition, both in Natixis’ home market of France, its largest market, and internationally, could adversely affect Natixis’ net revenues and profitability Natixis’ primary businesses contend with fierce competition in France and in other areas of the world where it is firmly established. Heightening this competition is consolidation, whether in the form of mergers and acquisitions or through alliances and cooperation. Consolidation has created a number of firms that, like Natixis, have the ability to offer a wide range of products and services. Natixis competes with other entities on many levels, including transaction execution, products and services offered, innovation, reputation and price. If Natixis is unable to maintain its competitiveness in France or in its other major markets with attractive and profitable product and service offerings, it may lose market share in important areas of its business or incur losses on some or on all of its operations. In addition, downturns in the global economy or in the economies of Natixis’ major markets are likely to increase competitive pressure, as increased price pressure lowers business volumes for Natixis and its competitors. New and more competitive competitors could also enter the market. Subject to separate or more flexible regulation, or to other requirements relating to prudential ratios, these new market participants may be able to offer more competitive products and services. Technological advances and the growth of e-commerce have made it possible for non-bank institutions to offer products and services that traditionally were banking products, and for financial institutions and other companies to provide electronic and Internet-based financial solutions, including electronic securities trading. These new players may exert downward price pressure on Natixis’ products and services and affect Natixis’ market share. In addition, new payment systems and currencies, such as bitcoin, and new technologies facilitating transaction processing, such as blockchain, have become increasingly common. It is difficult to predict the effects of the emergence of such new technologies, which face comparatively little regulation, but their increased use may reduce the market share of, or redirect amounts that might have otherwise been invested in portfolios operated by, more established financial institutions such as Natixis.

The financial soundness and behavior of other financial institutions and market participants could have an adverse impact on Natixis Natixis’ ability to carry out its operations could be affected by the financial soundness of other financial institutions and market participants. Financial institutions are closely interconnected mainly as a result of their trading, clearing, counterparty and financing operations. The default of a sector participant, or mere rumors or questions surrounding one or more financial institutions or the finance industry as a whole, have, in the past, led to a widespread contraction in liquidity in the market and, in the future, could lead to additional losses or defaults. Natixis is exposed to numerous financial counterparties, such as investment service providers, commercial or investment banks, mutual funds and hedge funds, as well as other institutional clients with which it conducts transactions in the ordinary course of business. Natixis is therefore exposed to a risk of insolvency should one of its counterparties or customers fail to meet their commitments. This risk would be compounded if the assets held as collateral by Natixis were unable to be sold or if their price was insufficient to cover all of Natixis’ exposure to loans or derivatives in default. In addition, fraud or misappropriation committed by financial sector participants may have a highly detrimental impact on financial institutions due to interconnected nature of institutions operating in the financial markets. The potential losses arising from the above-mentioned risks could have a significant bearing on Natixis’ results. An extended market decline may reduce the liquidity of assets and make it more difficult to sell them, potentially giving rise to significant losses In some of Natixis’ businesses, a prolonged fall in asset prices could threaten business levels or reduce liquidity in the market concerned. This situation would expose Natixis to significant losses were it unable to rapidly close out its potentially loss-making positions. This is particularly true in relation to intrinsically illiquid assets. Certain assets, such as derivatives traded between banks, that are not traded on a stock exchange, regulated market, or offset through a clearing house are generally valued using models rather than on the basis of the market price. Given the difficulty in monitoring changes in prices of these assets, Natixis could suffer unforeseen losses. In addition, Natixis originates or acquires certain assets with a view to their subsequent resale or distribution through channels such as syndication or securitization. A reduction in the liquidity of the markets for such assets or the syndication or securitization markets more generally, or the inability of Natixis to sell or reduce its positions in such assets, may require Natixis to bear more credit risk and market risk associated with such assets than it 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 of operations and financial condition.

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NATIXIS Risk report Pillar III 2017