NATIXIS_REGISTRATION_DOCUMENT_2017

5 FINANCIAL DATA

Consolidated financial statements and notes

Fair value hedging Fair value hedging is intendedto hedge the exposureto changes in fair value of a recognizedasset or liability or an unrecognized firm commitment. Overall hedging of interest rate risk The subsidiaryNatixis Financial Products LLCdocumentsoverall hedging of its interest rate risk in accordance with fair value hedging rules. To account for these transactions,the subsidiary applies the carve-out provisions of IAS 39 as adopted by the EuropeanUnion. The accountingtreatmentof derivativefinancial instrumentsdesignatedfor accountingpurposesas structuralfair value hedges is similar to that applied to fair value hedging derivatives. Changes in the fair value of portfolios of hedged instrumentsare reported on a specific line of the balance sheet (“Revaluationadjustmentson portfolios hedged against interest Natixis uses plain vanilla interest rate swaps lending at fixed rates to protect itself against the impact of unfavorablechanges in interest rates on its fixed-rate borrowings and issues. Plain vanilla swaps borrowingat fixed rates are used to protect it from the impact of unfavorable changes in interest rates on its fixed-rateloans and securities. Documentation of fair value hedges Prospectivehedge effectivenesstests involve verifying that the financial characteristics of the hedged item and the hedging instrument are virtually identical: value date, maturity date, notionalamount,fixed rate, and paymentfrequency. Retrospective hedge effectiveness tests are used to verify whetherthe hedgewas effectiveat differentreportingdates. At each such date, changes in the fair value of hedging instruments (excluding accrued interest) are compared with changes in the fair value of the hypotheticalassets and liabilities hedged (synthetic instruments representativeof hedged assets or liabilities).To be effective,changesin the fair value of hedging instruments must offset changes in the fair value of hedged items in a range of 80%-125%. Outside these limits, the hedge no longer qualifies for hedge accountingunder IFRS. Accounting for fair value hedges Changes in the fair value of the derivatives are recognized as incomefor both the effectiveand ineffectiveportions. Symmetrically,changes in the fair value of the hedged items are recognizedas income. Accordingly, only the ineffective portion of the hedge affects income. Changes in the fair value of hedging derivatives excluding accrued interest are recorded in income under “Net gains or losses on financial instruments at fair value through profit or loss”. Accrued interest relating to these instrumentsis recorded under “Interest and similar income” or “Interest and similar expenses”. When a hedging relationship is discontinued, the hedging instrument is reclassified in financial instruments at fair value through profit or loss, while the unrealized gain or loss on the hedged item is fixed at its amount on the date the hedge is discontinuedand taken to incomethroughto maturity. rate risk”),with a correspondingentry in income. Hedging of fixed-rate loans and borrowings

Hedging of a net investment in a foreign operation Net investment hedges are used to hedge the exchange risk arising on net foreign currency investments (consolidated subsidiary or investment). They are accounted for in the same way as cash flow hedges.The effectiveportionof changesin the fair value of hedging instruments(monetaryderivativeor liability denominatedin foreign currency) is recognized in equity. These changes in fair value offset translation adjustments recognized when the entity is consolidated (see Note 2.10) . The ineffective portion of changes in fair value is recognized in income. Unrealized gains or losses recognized directly in equity are transferred to income when all or part of the net investment is sold. Internal contracts Many internal contracts involving derivatives used in hedge accountingexist betweenNatixis and its subsidiaries.To ensure that the transactions meet the hedge accounting criteria for consolidationpurposes, Natixis regularly verifies that they have been correctlyhedgedon the market. Credit derivatives Credit derivativesused by Natixis are not consideredas financial guaranteesbut as derivativesfalling within the scope of IAS 39. They are classified as assets or liabilities at fair value through profit or loss. Currency trading 5.5 The method used to account for assets and liabilities relating to foreign currency transactions entered into by Natixis depends upon whether the asset or liability in question is classified as a monetaryor a non-monetaryitem. Monetaryassets and liabilitiesdenominatedin foreign currencies are translated into the functional currency at the spot rate prevailing at the reporting date. All resulting foreign exchange gains and lossesare recognizedin income,except in two cases: only the portion of the foreign exchange gains and losses a calculated based on the amortized cost of available-for-sale financial assets is recognized in income, with the remainder being recognized in “Gains and losses recognized directly in equity”; foreign exchange gains and losses arising on monetary items a designatedas cash flow hedges or as part of a net investment in a foreign operation are recognized in “Gains and losses recognizeddirectlyin equity”. Non-monetary items denominated in foreign currencies and measuredat historicalcost are translatedat the exchangerate on the transaction date (or the date of reclassificationin equity for perpetualdeeplysubordinatednotes issued: see Note 12.3.1 ). Non-monetary items denominated in foreign currencies and measured at fair value are translated at the prevailing exchange rate at the end of the reporting period. Gains or losses on a non-monetary item (e.g., equity instruments) denominated in a foreign currency are recognized as income when the asset is classifiedas “Financialassets at fair value throughprofit or loss” and in equity when the asset is classified as “Available-for-sale financial assets”, unless the financial asset is designated as a hedged item in a fair value hedge, in which case foreign exchangegains and lossesare recordedas income.

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Natixis Registration Document 2017