Natixis : THIRD-QUARTER 2014 AND NINE-MONTH 2014 RESULTS

 

Paris, November 4, 2014

Third-Quarter 2014 and Nine-Month 2014 results

Significant increase in net income gs: €318m in 3Q14 ⁽¹⁾, up 21% vs. 3Q13 and €961m in 9M14⁽¹⁾, up 15% vs. 9M13.
Strong growth in CET1 ratio

Core-business Net Revenues⁽¹⁾ up 7% in 9M14 and 2% vs. 3Q13

• Wholesale Banking: €20bn of new loan production in the Structured financing business in the first nine months of 2014
• Asset Management: €708bn AuM ($894bn), a €79bn increase since end-December 2013, notably thanks to a €6.6bn net inflows in 3Q14 (€24bn in 9M14)
• Insurance: global turnover up 20% in 9M14
• Specialized Financial Services: Specialized financing revenues up 2% vs. 9M13

Strong growth in core-business earnings⁽¹⁾ and profitability

• Net revenues up 3% to €1.9bn vs. 3Q13 and 5% to €5.8bn vs. 9M13
• Gross operating income up 6% vs. 3Q13 and 12% vs. 9M13, thanks to sound cost control
• Core-business provision for credit loss down sharply to 25bps in 3Q14 vs. 55bps in 3Q13
• Net income (gs): up 21% to €318m vs. 3Q13 and 15% to €961m vs. 9M13
• ROTE of 9,8% in 9M14, up 40bps vs. 9M13
• EPS⁽²⁾ up a substantial 31% to €0.32 in 9M14

Further constitution of available capital

• Increase in Basel 3 CET1 ratio ⁽³⁾ of 11.5% at end-September 2014, up 65bps vs. end-June 2014 excluding PVA impact

ECB AQR/Stress test

• Groupe BPCE's financial solidity demonstrated
• Natixis' dividend payout policy and investment strategy confirmed

1. See note on methodology
2. Excluding fair-value adjustment on own debt
3. Based on CRR-CRD4 rules published on June 26, 2013, including the Danish compromise - no phase-in except for DTAs on loss carry-forwards

The Board of Directors examined Natixis's third-quarter 2014 accounts on November 4, 2014. For Natixis, the main features of 3Q14 were:

• a 2% increase in core-business revenues vs. 3Q13. In Wholesale Banking, the Equity derivatives and Structured financing activities both fared well.

Investment Solutions continued to record robust revenue growth and inflows, both in the Asset management and Insurance businesses.
Specialized Financial Services made further progress with rolling out the offering to the BPCE networks in difficult economic conditions in France.

• a tight grip on expenses, which inched up 1% vs. 3Q13,
   
• a marked 37% reduction in the provision for credit loss vs. 3Q13,
   
• a 21% advance in net income (group share)⁽¹⁾, to €318m,
   
• a significant improvement in core-business ROE⁽¹⁾ to 12.0% in 3Q14 vs. 10.6% in 3Q13,
   
• a Basel 3 CET1 ratio⁽²⁾ of 11.5% at end-September 2014, a 65bp-increase vs. June 30, 2014 excluding the PVA impact, spurred by good earnings and reduced RWA.

Laurent Mignon, Natixis Chief Executive Officer says: "The financial strength of Natixis, illustrated again this quarter by the strong ability to create available capital, reinforces our strategic choices with our determination on our "asset light" model and our distribution policy. Totally focused on customers, our three core businesses, since the beginning of the year, demonstrate strong commercial momentum and continue to improve their profitability".

1. See note on methodology
2. Based on CRR-CRD4 rules published on June 26, 2013, including the Danish compromise - no phase-in except for DTAs on loss carry-forwards

1 - Natixis's 3Q14 and 9M14 results

1.1       Exceptional items

(1)  See note on methodology

1.2       3Q14 results

(1)  See note on methodology

Unless stated otherwise, the commentary that follows refers to pro forma results excluding exceptional items (see detail p3).

NET REVENUES

Natixis's net revenues rose 3% to €1.868bn vs. 3Q13, and included a 2% increase in core-business revenues to €1.669bn. The breakdown by core business was as follows:

• Wholesale Banking revenues contracted 9% vs. 3Q13, reflecting a high basis of comparison in the year-earlier period (several significant deals were booked in 3Q13, particularly by FIC-T),
• Investment Solutions made further strong progress: revenues climbed 16%, with all activities making contributions,
• Net revenues in Specialized Financial Services were almost flat (-1%) vs. 3Q13, against a difficult economic backdrop in France,
• Financial Investments grew revenues 6% vs. 3Q13, thanks to a strong showing by Coface.

EXPENSES

Operating expenses grew only 1% vs. 3Q13. The cost-income ratio improved by 0.9ppts to 69.7% in 3Q14 vs. 3Q13.
                                    
Gross operating income amounted to €566m, 6% higher than in 3Q13.

PROVISION FOR CREDIT LOSS

The provision for credit loss contracted 37% to €61m vs. 3Q13. The core-business provision for credit loss declined to 25bps of outstanding loans in 3Q14.

PRE-TAX PROFIT

Pre-tax profit advanced 20% to €530m vs. 3Q13.

NET INCOME

Net income (group share) came out at €318m, up 13% vs. 3Q13 and 21% after factoring in the GAPC impact in 3Q13 (the GAPC was closed on June 30, 2014).
After restating for exceptional items (+€63m) and the fair-value adjustment on own senior debt (-€100m net of tax), reported net income (group share) climbed 27% to €281m vs. 3Q13.

1.3       9M14 results

1. See note on methodology

Unless stated otherwise, the commentary that follows refers to pro forma results excluding exceptional items (see detail p3).

NET REVENUES

Natixis's net revenues rose 5% in 9M14, fuelled by a 7% increase in core-business revenues. The breakdown by core business was as follows:

• Wholesale Banking revenues rose 2%, fuelled by Equities and Structured financing,
• Investment Solutions was spurred by strong momentum in all constituent activities and revenues advanced 16%,
• Net revenues from Specialized Financial Services grew 1%, thanks to a 2% increase from Specialized Financing,
• Financial Investments recorded a 1% decline in overall net revenues, with Corporate Data Solutions contracting 15% (activities being run off).

EXPENSES

With operating expenses rising only 2%, gross operating income progressed 12% to €1.799bn.

PROVISION FOR CREDIT LOSS

The provision for credit loss (excluding GAPC) declined by 23% to €222m in 9M14.

PRE-TAX PROFIT

Pre-tax profit climbed 21% to €1.612bn vs. €1.335bn in 9M13.

NET INCOME

Net income (group share) excluding GAPC came out at €989m, up 16% vs. 9M13. Including GAPC (-€28m in 9M14), net income amounted to €961m, up 15% relative to 9M13. After incorporating exceptional items (+€85m) and the fair-value adjustment on own senior debt (-€123m net of tax), reported net income (group share) totaled €923m, a 13% increase vs. 9M13.

2 - Financial Structure

Natixis's Basel 3 CET1 ratio⁽¹⁾ reached 11.5% at September 30, 2014, a 65bp-increase vs. end-June 2014 excluding PVA⁽²⁾ impact.

Based on a Basel 3 CET1 ratio ⁽¹⁾ of 11.2% at June 30, 2014, the respective impacts in the third quarter of 2014 were as follows:

• effect of allocating net income (group share) to retained earnings in 3Q14, excluding the dividend: +32bps,
• scheduled 3Q14 dividend: -17bps,
• RWA effects: +32bps,
• Exchange rates and other effects: +20bps,
• PVA impact: -28bps.

Basel 3 capital and risk-weighted assets⁽¹⁾ amounted to €13.3bn and €115.2bn, respectively, at September 30, 2014.

EQUITY CAPITAL - TIER ONE CAPITAL - BOOK VALUE PER SHARE

Equity capital (group share) amounted to €18.5bn at September 30, 2014, of which €1.0bn was in the form of hybrid securities (DSNs and preferred shares) recognized in equity capital at fair value.

Core tier 1 capital (Basel 3 - phased-in) amounted to €13.0bn, and tier 1 capital (Basel 3 - phased-in) to €14.1bn.

Natixis's risk-weighted assets totaled €115.3bn at September 30, 2014 (Basel 3 - phased-in).

Under Basel 3 (phased-in), the CET1 ratio stood at 11.2% at September 30, 2014; the Tier 1 ratio was 12.2% and the total ratio 14.1%.

Book value per share was €5.49 at September 30, 2014, based on 3,114,236,202 shares excluding treasury stock (the total number of shares stands at 3,116,507,621). Net tangible book value per share (after deducting goodwill and intangible fixed assets) was €4.45.

OVERALL CAPITAL ADEQUACY RATIO

As at September 30, 2014, the financial conglomerate's capital exceeded the regulatory minimum by around €7bn.

1. Based on CRR-CRD4 rules published on June 26, 2013, including the Danish compromise - no phase-in except for DTAs on loss carry-forwards
2. Prudent Valuation

3 - Results by business line

Wholesale Banking
Data excludes exceptional items ⁽¹⁾

1. See note on methodology

Wholesale Banking net revenues amounted to €2.194bn in 9M14, a 2% increase on the year-earlier period, driven by good momentum in Equities and Financing.
The third quarter of 2013 represented a demanding basis of comparison, with significant deals booked in that period (particularly within FIC-T). As a result, overall Wholesale Banking net revenues declined 9% to €674m in 3Q14.

Expenses were kept in check and were unchanged at €414m in 3Q14 vs. 3Q13 and rose only 1% to €1.268bn in 9M14. The cost-income ratio consequently improved to 57.8% in 9M14 vs. 58.8% in the year-earlier period.

Gross operating income amounted to €260m in 3Q14 and €926m in 9M14, up 5% vs. 9M13.

The provision for credit loss decreased further, by 66% to €24m in 3Q14 and 39% to €137m in 9M14.

Pre-tax profit came out at €242m in 3Q14 and €805m in 9M14, a 22% advance vs. 9M13.

Profitability made strong progress, with after-tax ROE (after capital allocation according to Basel 3 rules) widening by 210bps to 10.1% in 9M14 vs. 8.0% in the year-earlier period.

New Structured Financing production amounted to €8.1bn in 3Q14 and €20bn for the year to date, spurred by strong showings in Aircraft, Export & Infrastructure and Real Estate financing and by the US platform. Net revenues increased 7% on a constant exchange-rate basis in 9M14 notably thanks to GEC, Real Estate and globally a good level of fees.

New Commercial Banking production totaled €2.8bn in 3Q14, notably driven by new business. Net revenues grew by 5% in 9M14, fuelled by Trade Finance and higher fees on vanilla lending activities.   

The Interest Rate, Foreign Exchange, Commodities and Treasury (FIC-T) segment resisted well in 9M14, with the Debt plateform and Fixed Income activities turning in another fine performance (+6% 9M14 vs. 9M13, excluding CVA/DVA). Natixis was the n°1 bookrunner on the primary bond issues in euros for French issuers in 9M14 (Dealogic) and the n°3 bookrunner on primary bond issues in euros for financial institutions in 9M14 (Dealogic - Covered Bonds, Senior Unsecured, Subordinated and ABS/MBS). Revenues amounted to €222m in 3Q14, compared to €273m in 3Q13 (+25% compared to 2Q13), a period boosted by significant deals.

Net revenues from Equities rose 6% to €346m in 9M14, with Derivatives remaining the biggest growth driver. ECM business also performed particularly well in 9M14.

Investment Solutions      

(1)   See note on methodology

Investment Solutions revenues progressed by 16% to €689m in 3Q14 and also by 16% to €2.047bn in 9M14, with all business lines faring very well.

The cost-income ratio improved sharply by 480bps to 70.1% in 3Q14 relative to a year earlier. The ratio also improved substantially by 340bps to 70.9% in 9M14.  
Gross operating income jumped 38% to €206m in 3Q14 and 31% to €596m in 9M14.  

Pre-tax profit climbed 35% to €204m in 3Q14. ROE (after Basel 3 capital allocation) widened by 400bps to 15.9% in 3Q14.

Asset Management lifted revenues and gross operating income sharply in 3Q14, by 16% and 27%, respectively.
Net inflow amounted to €27bn (excluding money market products) in 9M14, of which  €16bn from fixed-income products and €12bn from equity products. The increase in assets under management in 3Q14 stemmed from a €6.6bn net inflow, a €23.8bn contribution from exchange-rate and perimeter effects and a €1.9bn negative market effect.
Assets under management amounted to €708bn at end-September 2014 (up €79bn vs. December 31, 2013), including €359bn in the USA and €338bn in Europe.

In Insurance, net revenues rose 11% to €129m in 3Q14 vs. 3Q13 and 17% to €394m in 9M14 (data presented pro forma of the integration of BPCE Assurances since 1Q13).
Overall turnover advanced 20% in 9M14 vs. 9M13, spurred both by life and non-life activities which grew turnover by 23% and 10%, respectively in 9M14.

In Private Banking, net inflow reached €1.2bn at end-September 2014, more than double the €500m recorded in the year-earlier period, while assets under management expanded 9% to €24.3bn at end-September 2014.

Specialized Financial Services

(1) See note on methodology

Against a difficult economic backdrop in France, Specialized Financial Services grew revenues by 1% to €938m in 9M14. Specialized Financing contributed with a 2% increase in revenues during the period.  

The cost-income ratio improved by 20bps to 65.8% in 9M14, thanks to a tight grip on expenses since the start of the year. Over 9M14, gross operating income rose 2% to €321m.

The provision for credit loss contracted 11% in 3Q14 and 9% in 9M14.

ROE (after Basel 3 capital allocation) widened by 210bps to 15.9% in the 12 months to end-September 2014.

Specialized Financing revenues rose 1% to €182m in 3Q14 and 2% to €547m over 9M14, helped by good performances from Sureties & Guarantees and Leasing.

In Financial Services, sums managed in the Employee Savings Schemes segment reached €23.3bn at end-September 2014, up 9% on a year earlier.

Financial Investments     

Coface is 41.30%-owned since July 2014 and is is still fully consolidated in Natixis's books. 

Coface's net revenues⁽¹⁾ rose 7% to €176m in 3Q14 and also 7% to €536m in 9M14 relative to the respective year-earlier periods.  
Turnover⁽²⁾ increased 1.7% to €352m in 3Q14 and 1.8% to €1.093bn in 9M14.

A tight grip on risks⁽³⁾ drove an almost 6pp-reduction in the loss ratio to 49.7% in 9M14. And with expenses also being kept in check, the combined ratio improved 6.5pps to 77.4% in 9M14 vs. 9M13.

Net revenues from Financial Investments gained 6% in 3Q14 vs. 3Q13 after taking into account the impact of running off Corporate Data Solutions. Costs were reduced by 6%. Gross operating income more than doubled to €41m in 3Q14 vs. €18m in 3Q13. Pre-tax profit came out at €40m, four times higher than in 3Q13.

1. On constant perimeter and exchange rates, and excluding exceptional items
2. On constant perimeter and exchange rates
3. Loss ratio on a pro forma basis: policyholder participation is booked against premiums (turnover) instead of being included in claims expense. Cost ratio on a pro forma basis: the CVAE levy is booked to tax and not included in insurance management expenses.

Appendices

Comments on methodology

> 2013 figures are pro forma:

• of the acquisition by Natixis of Groupe BPCE's 60% stake in BPCE Assurances. The BPCE Assurances acquisition was realized on March 13th 2014 with a retroactive effect as of January 1st, 2014. 40% of BPCE Assurances capital is still owned by MACIF and MAIF. The figures used for the pro forma income statement are based on BPCE Assurances contribution to Groupe BPCE consolidated accounts reported in 2013.
   
• of the reclassification of the 15% Natixis share in CACEIS from the Securities services business (Specialized Financial Services) to the Corporate Center since 1Q13.
   
• of the sale of Cooperative Investment Certificates (means the pro forma of the effective sale on August 6, 2013 of all CCIs hold by Natixis to the Banques Populaires and the Caisses d'Epargne).

> Business line performance using Basel 3 standards:

Starting in 2013, the performances of Natixis business lines are presented using Basel 3 standards. Basel 3 risk-weighted assets are based on CRR-CRD4 rules as published in June 26th 2013 (including Danish compromise treatment for qualified entities).

Capital is allocated to Natixis business lines on the basis of 9% of their Basel 3 average risk weighted assets.

Annualized ROTE is computed as follows: net income (group share) - DSN net interest/average net assets after dividend - hybrid notes - intangible assets - average goodwill. And, since 3Q13, this ratio include goodwill and intangible assets by business lines to determinate the ROE ratio of businesses (figures are pro forma in this presentation). 

> The remuneration rate on normative capital is still 3%.

> Own senior debt fair-value adjustment calculated using a discounted cash-flow model, contract by contract, including parameters such as swaps curve, and revaluation spread (based on the BPCE reoffer curve).

    > 3Q14 CVA/DVA impacts reflect changes after the establishment of new operations in the FIC-T business

> Exceptional items: the data and commentary contained in this presentation are based on the income statements of Natixis and of its core businesses, after restating for the exceptional items detailed on page 3. The income statements of Natixis and of its core businesses, including these exceptional items (reported data), are shown in the appendix to this presentation.

3Q14 results: from data excluding exceptional items to reported data

Natixis - Consolidated ⁽¹⁾

1. See note on methodology

Natixis - Breakdown by Business division in 3Q14

Natixis - Breakdown by Business division in 9M14

Wholesale Banking

Investment Solutions

1. Normative capital allocation methodology based on 9% of average RWA - including goodwill and intangible fixed assets

Specialized Financial Services

1. Normative capital allocation methodology based on 9% of average RWA - including goodwill and intangible fixed assets and pro forma of the re-classification of Natixis's 15% equity interest in CACEIS from the Securities Services business line to the Corporate Center in 1Q13

Financial Investments

Corporate Center ⁽¹⁾

1. Excluding restructuring expenses and pro forma of the re-classification of Natixis's 15% equity interest in CACEIS from the Securities Services business line to the Corporate Center in 1Q13

GAPC

Disclaimer

This media release may contain objectives and comments relating to the objectives and strategy of Natixis. Any such objectives inherently depend on assumptions, project considerations, objectives and expectations linked to future and uncertain events, transactions, products and services as well as suppositions regarding future performances and synergies.

No assurance can be given that such objectives will be realized. They are subject to inherent risks and uncertainties, and are based on assumptions relating to Natixis, its subsidiaries and associates, and the business development thereof; trends in the sector; future acquisitions and investments; macroeconomic conditions and conditions in Natixis' principal local markets; competition and regulation. Occurrence of such events is not certain, and outcomes may prove different from current expectations, significantly affecting expected results. Actual results may differ significantly from those implied by such objectives.

Information in this media release relating to parties other than Natixis or taken from external sources has not been subject to independent verification, and Natixis makes no warranty as to the accuracy, fairness, precision or completeness of the information or opinions herein. Neither Natixis nor its representatives shall be liable for any errors or omissions, or for any prejudice resulting from the use of this media release, its contents or any document or information referred to herein. The figures in this media release are unaudited.

Contacts:

Investor Relations:	investorelations@natixis.com			Media Relations:		relationspresse@natixis.com
Pierre-Alexandre Pechmeze	T + 33 1 58 19 57 36			Elisabeth de Gaulle		T + 33 1 58 19 28 09
François Courtois	T + 33 1 58 19 36 06			Olivier Delahousse		T + 33 1 58 55 04 47
Souad Ed Diaz Brigitte Poussard	T + 33 1 58 32 68 11 T + 33 1 58 55 59 21			Sonia  Dilouya		T + 33 1 58 32 01 03

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