NATIXIS - Universal registration document and financial report 2019

FINANCIAL DATA Consolidated financial statements and notes

business model associated with these products and led to the reserve mechanism being supplemented by introducing an additional reserve to allow for the model’s shortcomings. This reserve was based on expert judgment (including in particular forecast changes in market conditions, portfolio behavior, etc.) and, as a result, the prices of the products subject to expert judgment were no longer directly observable. The products were then transferred from Level 2 to Level 3 of the fair value hierarchy, based on the observability of inputs, the model used and observed liquidity.

d)

Natixis’ policy on transfers between

fair value levels Transfers between fair value levels are reviewed and validated by the Valuation Committee, predominantly including representatives of the Finance fonction, Risk and Business Lines. The Committee considers various indicators of market activity and liquidity as described in the General Principles. A review is undertaken for any instrument that ceases to meet these criteria or once again complies with the criteria. The transfers to and from Level 3 presented below are subject to validation by the Valuation Committee. The main reclassifications in the 2019 fiscal year consisted of Bermuda accreter swaptions (in EUR and AUD), certain complex multi- or mono-underlying derivatives indexed to indices, and associated liabilities measured under the fair value option. These instruments were reclassified from Level 2 to Level 3 of the fair value hierarchy (see Notes 8.5.1 and 8.5.3) subsequent to the observability review conducted during the period, which found a lack of observed prices for the corresponding inputs and products, serving as a basis for their reclassification to Level 3 of the fair value hierarchy. Note: at December 31, 2018, a portfolio of complex derivatives in Asia had been transferred to Level 3 in the fair value hierarchy. The portfolio consisted of products indexed to the worst performance of an underlying Equity basket (indices and shares) allowing investors to receive enhanced periodic coupons in return for a risk of loss of capital at maturity, with the possibility that the product may expire early. The outstandings in question had a fair value recorded on the asset side of the balance sheet of €131 million at December 31, 2018. The bear market in Asia had underscored the limitations of the

e)

Instruments affected

by the financial crisis CDS arranged with credit enhancers (monoline insurers)

Since December 31, 2015, the valuation model used to measure write-downs on CDS contracted with monoline insurers has moved more in line, in terms of method, with the adjustment made for counterparty risk (Credit Valuation Adjustment – CVA). It also takes account of the expected depreciation of exposures and the

counterparty spread implied from market data. TruPS (Trust Preferred Securities) CDOs

In 2018, the value of TruPS CDOs was measured using a valuation model. This model is based on projected future cash flows and default rates determined according to a statistical approach that deduces the default probability of banks according to their financial ratios. For other sectors, default rates were estimated considering the current ratings of assets. At December 31, 2019, the value of TruPS CDOs was marked to market due to the sufficient number of contributions.

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NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019