BPCE - 2018 Registration document

FINANCIAL REPORT IFRS Consolidated Financial Statements of Groupe BPCE as at December 31, 2018

unlisted shares whose fair value could not be determined using ● observable inputs; private equity securities not listed on an active market, measured ● at fair value with models commonly used by market participants, in accordance with International Private Equity Valuation (IPEV) standards, but which are sensitive to market fluctuations and whose fair value determination necessarily involves a judgment call; structured securities or securities representative of private ● placements, held by the Insurance business line; hybrid interest rate and currency derivatives and credit derivatives ● that are not classified in Level 2; loans in the syndication process for which there is no secondary ● market price; loans in the securitization process for which fair value is ● determined based on an expert appraisal; investment property whose fair value is calculated using a ● multi-criteria approach, by capitalizing rent at market rates and units of UCITS for which the fund has not published a recent NAV ● at the valuation date, or for which there is a lock-up period or any other constraint calling for a significant adjustment to available market prices (NAV, etc.) in respect of the low liquidity observed for such shares; instruments carried at fair value on the balance sheet and for ● which data are no longer available due to a freeze in trading in the wake of the financial crisis. When there is a significant drop in trading in a given market, a valuation model is used based on the only available relevant data. through comparisons with market transactions; instruments with a deferred day one margin; ●

Plain vanilla derivatives are also classified as Level 3 fair value when exposure is beyond the liquidity horizon determined by underlying currencies or by volatility surface ( e.g. certain foreign currency options and volatility caps/floors). In accordance with the Ministerial Order of February 20, 2007, as amended by the Order of November 23, 2011 on capital requirements for credit institutions and investment companies and pursuant to the European Regulation of June 26, 2013 (CRR) on the Basel III requirements, for each of the models used, a description of crisis simulations applied is provided in Chapter 3 “Risk Management”. Under IFRS 9, day one profit should be recognized only if it is generated by a change in the factors that market participants would consider in setting a price, i.e. only if the model and parameters input into the valuation are observable. If the selected valuation model is not recognized by current market practices, or if one of the inputs significantly affecting the instrument’s valuation is not observable, the trading profit on the trade date cannot be recognized immediately in the income statement. It is taken to income on a straight-line basis over the life of the transaction or until the date the inputs become observable. Any losses incurred at the trade date are immediately recognized in income. At December 31, 2018, instruments for which the recognition of day one profit/loss has been deferred mainly included: multi-underlying structured equity and index products; ● synthetic loans; ● options on funds (multi-assets and mutual funds); ● structured fixed income products; ● securitization swaps. ● These instruments are almost all located at Natixis.

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Registration document 2018