NATIXIS : THIRD-QUARTER 2017 AND NINE-MONTH 2017 RESULTS

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Natixis -   0,00%

• €111.7bn of RWA, down 3% since the beginning of the year. CET1 ratio⁽³⁾ of 11.5% at end-September 2017 (+20bps vs. end-June 2017) factoring in a minimum dividend payout of 50%.

(1) Transaction announced on September 7, 2017 and subject to approval from ACPR (2) Excluding exceptional items and the IFRIC 21 impact for cost income ratio, ROE, and ROTE (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 (4) Subject to confirmation of the pre-notification received from the ECB

The Board of Directors approved Natixis' accounts for the third quarter of 2017 on November 7, 2017.

For Natixis, the main features of 3Q17 were:

• a 10% YoY increase in net revenues for core businesses, to €2.068bn. Partly driven by a positive momentum at Coface, Natixis grew overall revenues 15% YoY to €2.205bn.

The Investment Solutions business experienced a 17% YoY increase in revenues fueled by solid activity levels and improved product-mix in both Asset Management (net revenues +18% YoY to €716m) and Insurance (net revenues +12% YoY to €174m).

Asset Management recorded €3bn of net inflows in 3Q17, with €5bn inflows on high value-added long-term products outweighing €2bn outflows on money-market products. Assets under management reached €813bn at end-September, including the transfer out of €23bn of CNP Assurances assets during the quarter.

In Insurance, overall turnover (excluding reinsurance agreement with CNP) progressed 31% YoY to €2.5bn, driven by a sound momentum in all segments.

Net revenues from Corporate & Investment Banking rose 4% YoY. Excluding non-recurring items, they declined 5% YoY to €787m. 3Q17 witnessed lower client activity in capital markets relative to 3Q16 which benefited from the high volatility sparked by the Brexit vote at the end of June 2016. Investment Banking and M&A fared well, with revenues expanding 13% YoY.

Specialized Financial Services grew net revenues 5% to €341m, with Specialized Financing rising 6% and Financial Services 3%.

• a cost-income ratio, excluding IFRIC21⁽¹⁾, of 70% in 3Q17, down 80bps YoY,
• a drop of provisions for credit losses across core businesses to €28m vs. €62m in 3Q16, reflecting a significant improvement in Corporate & Investment Banking,
• a 29% growth in net income (group share) to €383m,
• core businesses ROE⁽¹⁾ of 13.2% excluding IFRIC 21,  
• a CET1 ratio⁽²⁾ of 11.5% at end-September 2017,
• a leverage ratio⁽¹⁾ of 4.2% à end-September 2017.

Laurent Mignon, Natixis Chief Executive Officer, said: "Our solid third-quarter results and good performances since the start of 2017 testify to the success of our New Frontier strategic plan due for completion at year-end. During the course of the plan, we have achieved our goal of becoming an exclusively client-focused bank that delivers high value-added and non-capital intensive solutions. We have expanded our international footprint in asset management and Corporate & Investment Banking, set up a single insurance arm to serve Groupe BPCE and its two large networks, and continued to develop synergies with them in terms of services and specialized financings.
I would like to thank all of our staff for their work and general dynamism during this period. Their efforts have ensured Natixis is now widely recognized for the strength of its expertise, and enjoys both financial solidity and strong profitability. These achievements provide a sound basis to begin executing on our new strategic plan which will be unveiled on November 20."

1. See note on methodology
2. Based on CRR-CRD4 rules published on June 26, 2013, including the Danish compromise without phase-in except for DTAs on tax-loss carryforwards

1 - Natixis 3Q17 and 9M17 results

1.1          exceptional items

1. o/w €9m in Corporate Center in 3Q17 and €25m in 9M17

1.2          3Q17 results

1. See page 3

Unless stated otherwise, the following comments refer to results excluding exceptional items (see detail p3).

Natixis posted €2.231bn in net revenues in 3Q17, a 6% increase YoY.

Net revenues from core businesses also progressed 6% YoY, reaching €2.068bn. Asset Management (+18%), Insurance (+12%) and Specialized Financing (+6%) all experienced significant growth.
One year after the launch of the Fit-to-Win strategic plan, Coface registered a marked improvement in activity levels. Coface net revenues were up 35% YoY in 3Q17 and fueled a 25% increase in revenues from the Financial Investments segment. 
Operating expenses came out at €1.515bn in 3Q17, a 5% YoY increase that is below revenue growth, resulting in a cost-income ratio excluding IFRIC 21 falling 80bps vs. 3Q16 to 70%.

Gross operating income rose 9% to €715m in 3Q17 vs. 3Q16.

Provisions for credit losses declined 20% YoY to €55m despite a €22m provision allocated to the general reserve in the Corporate Center. Expressed in basis points relative to the loan book (excluding credit institutions), provisions for credit losses across core businesses worked out to 14bps in 3Q17 vs. 30bps in 3Q16, the marked improvement being fueled by Corporate & Investment Banking.

Tax expense dropped 9% YoY in 3Q17, with the effective tax rate equating to 29%.
The 73% YoY rise in minority interests stemmed from the much-improved contribution from Coface and higher performance fees generated by certain European asset management affiliates.

Net income (group share) adjusted for IFRIC 21 impacts and excluding exceptional items came out at €369m in 3Q17, a 17% YoY increase. Including exceptional items (-€28m impact net of tax in 3Q17) and IFRIC 21 (+€42m impact in 3Q17), reported net income (group share) progressed 29% YoY to €383m.

Excluding IFRIC 21, Natixis' ROTE equated to 10.3% and core businesses ROE amounted to 13.2%, up 130bps and 90bps respectively, relative to 3Q16.

1.3          9M17 results

1. See page 3

Unless stated otherwise, the following comments refer to results excluding exceptional items (see detail p3).

Natixis posted net revenues of €7.047bn in 9M17, a 10% increase compared to the year-earlier period. 

During the first nine months of the year, core businesses net revenues increased by 10% to €6.585bn, driven by solid performances in Global Markets in 1H17 and robust momentum in Asset Management and Insurance since the beginning of the year.

Net revenues from Financial Investments inched up 1% YoY and reflected the completion of the process of divesting Corporate Data Solutions entities in 2Q17 and the continued improvement in Coface revenues since the beginning of the year, testifying to the measures implemented as part of the Fit-to-Win strategic plan.

Operating expenses amounted to €4.842bn vs. €4.574bn in 9M16.

The cost-income ratio excluding IFRIC 21 fell 2.5pp YoY in 9M17 and reached 68.1%.

Gross operating income rose 20% YoY to €2.205bn.

Natixis overall provisions for credit losses totaled €193m, a 21% decrease relative to 9M16. This drove a 22% improvement in pre-tax profit to €2.056bn during the same period.

The effective tax rate of 34% in 9M17 is in line with the annual trajectory.

Net income (group share), adjusted for IFRIC 21 impacts and excluding exceptional items, came out at €1.287bn in 9M17, a 25% increase YoY. Including exceptional items (-€94m impact net of tax in 9M17) and IFRIC 21 (-€42m impact in 9M17), reported net income (group share) progressed 31% YoY to €1.151bn.

Excluding IFRIC 21, Natixis' ROTE equated to 12.2% and core businesses ROE amounted to 15.1%, up 230bps and 210bps respectively, relative to 9M16.

2 - Financial structure

Natixis' Basel 3 CET1 ratio⁽¹⁾ worked out to 11.5% at September 30, 2017.

Based on a Basel 3 CET1 ratio of 11.3% at June 30, 2017, the respective impacts in the third quarter of 2017 were as follows:

• effect of allocating net income (group share) to retained earnings in 3Q17: +34bps,
• planned dividend for 3Q17: -16bps,
• RWA, FX and other effects: +3bps.

Basel 3 capital and risk-weighted assets⁽¹⁾ amounted to €12.9bn and €111.7bn respectively at September 30, 2017.

EQUITY CAPITAL - TIER ONE CAPITAL - BOOK VALUE PER SHARE

Equity capital (group share) totalled €19.7bn at September 30, 2017, of which €2.1bn was in the form of hybrid securities (DSNs) recognized in equity capital at fair value (excluding capital gain following reclassification of hybrids).

Core Tier 1 capital (Basel 3 - phase-in) stood at €12.8bn and Tier 1 capital (Basel 3 - phase-in) at €14.6bn.

Natixis' risk-weighted assets totalled €111.7bn at September 30, 2017 (Basel 3 - phase-in), breakdown as follows:

• Credit risk: €78.0bn
• Counterparty risk: €7.2bn
• CVA risk: €2.2bn
• Market risk: €10.3bn
• Operational risk: €14.0bn

Under Basel 3 (phase-in), the CET1 ratio amounted to 11.4%, the Tier 1 ratio to 13.1% and the total solvency ratio to 15.3% at September 30, 2017.  

Book value per share was €5.54 at September 30, 2017 based on 3,136,961,140 shares excluding treasury stock (the total number of shares stands at 3,137,360,238). Tangible book value per share (after deducting goodwill and intangible assets) was €4.43.

LEVERAGE RATIO ⁽²⁾

The leverage ratio worked out to 4.2% at September 30, 2017.

OVERALL CAPITAL ADEQUACY RATIO
As at September 30, 2017, the financial conglomerate's capital excess was estimated at around €3bn.

1. Based on CRR-CRD4 rules as reported on June 26, 2013, including the Danish compromise - without phase-in except for DTAs on tax-loss carryforwards
2. See note on methodology
   
3. - results by Business line

Investment Solutions
Data excludes exceptional items⁽¹⁾

1.  See note on methodology and excluding IFRIC 21 impact on the calculation of the cost-income ratio and ROE
    

During 3Q17, the Investment Solutions business recorded a significant revenues increase in Asset Management (net revenues +18% YoY), partly driven by improved fee rates in both Europe and the US, and in Insurance (+12% YoY), fueled by solid activity levels in both life and non-life segments.

On a year-on-year basis, net revenues from Investment Solutions progressed 17% in 3Q17 and 12% in 9M17 to reach €940m and €2.750bn respectively. Over the same periods, operating expenses increased by 11% and 8% respectively, resulting in a 3.1pp drop in the cost-income ratio in 3Q17 and 2.3pp in 9M17, excluding IFRIC 21 impacts.

Gross operating income improved 29% YoY in 3Q17 and 21% in 9M17.

The "Gain or loss on other assets" line included €9m of proceeds from the divestment of the Caspian private equity funds in 1Q17.

ROE after tax and excluding IFRIC 21 amounted to 15.2% in 3Q17, up 2.3pp compared to 3Q16. The 9M17 ratio was 1.0pp higher than in 9M16.

Net revenues from Asset Management progressed 18% YoY in 3Q17 to reach €716m (+21% at constant exchange rates) and included increases of 40% in Europe to €228m and 6% in the US to €393m.

Expenses remained under control, rising 13% in 3Q17 and 8% in 9M17 relative to the respective year-earlier periods.
Gross operating income advanced 29% in 3Q17 and 21% in 9M17.

In 3Q17, margins excluding performance fees reached 30.1bps (+2.2bps YoY) and progressed by 1.8bps in Europe to 14.5bps and 0.9bps in the US to 39.3bps. In 9M17, margins worked out to 28.8bps, up 0.5bps YoY.

This margin growth was driven by an improved mix linked to the €3bn overall net inflows recorded in 3Q17, resulting from €2bn outflows on money-market products and €5bn inflows on long-term products. Out of these inflows, €4bn were booked by European affiliates on higher value-added products such as alternative funds, equities and real assets.

Assets under management amounted to €813bn at end-September. During the quarter, positive market effects (impact of +€13bn) offset negative exchange-rate movements (impact of -€14bn). The decline in AuM relative to June 30 is linked to the transfer out of €23bn of CNP life insurance assets, with a limited impact on revenues of -€1.6m for a full year.    

Natixis announced on October 3, 2017 the acquisition of a majority stake (51.9%) in Investors Mutual Limited (IML) in Australia, which becomes a new affiliate of Natixis Global Asset Management.
With IML, a well-established asset manager with AuM of AU$9.1bn (€6.1bn), Natixis Global Asset Management achieves its first major acquisition in Australia and increases its exposure to the local retail market and the Australian superannuation industry. In addition, with IML, Natixis Global Asset Management is reinforcing its distribution platform in Australia, following the establishment of an office in Sydney in 2015. This marks an important step in Natixis Global Asset Management's ambition to expand its presence in Australia and APAC as a whole.

In Insurance, overall turnover excluding reinsurance agreement with CNP amounted to €8.9bn in 9M17, up 63% YoY. Growth was driven by increases of 11% in the Personal Protection and Payment Protection segment and 8% in the Property & Casualty segment. In Life Insurance, turnover jumped 84% YoY in 9M17, reflecting the successful rollout of the new product range in the Caisse d'Epargne networks.

Unit-linked instruments accounted for 49% of Life Insurance net inflows in 9M17 (+15pp YoY) and 35% of gross inflows, well above the 28% average for the market as a whole (source: FFA at end-September 2017).

Insurance AuM expanded 15% and reached €53bn at end-September 2017.  

On September 7, 2017, Natixis announced the signature of an agreement⁽¹⁾ for Natixis Assurances to acquire 40% of BPCE Assurances from Macif (25%) and Maif (15%). Following this transaction, Natixis Assurances will be BPCE Assurances' sole shareholder.
BPCE Assurances is France's third-largest bancassurer⁽²⁾ and markets Property & Casualty insurance products for Caisses d'Epargne customers and health insurance products for Caisses d'Epargne and Banque Populaire customers.

1.  Completion of the transaction subject to approval from the France's Autorité de Contrôle Prudentiel et de Résolution (2) Argus de l'Insurance - 2016 bancassurance rankings

  
Corporate & Investment Banking
Data excludes exceptional items⁽¹⁾

1. See note on methodology and excluding IFRIC 21 impact on the calculation of the cost-income ratio and ROE

After the robust momentum observed in 1H17, net revenues from Corporate & Investment Banking declined in 3Q17 relative to 3Q16. The slowdown came from Capital Markets whilst Investment Banking and M&A activities continued to make strong progress. For 9M17 as a whole, CIB posted €2.803bn in net revenues, up 12% YoY.

International platforms raised their contribution to overall CIB revenues from 54% in 9M16 to 57% in 9M17, driven by strong momentum on the Asia-Pacific platform, where revenues climbed 44% YoY in 9M17.

Operating expenses amounted to €1.614bn in 9M17 vs. €1.462bn a year earlier while the cost-income ratio excluding IFRIC 21 declined 1.0pp YoY to 57.2%.  

Gross operating income made solid progress, advancing 15% YoY to €1.189bn in 9M17, despite a lower 3Q17.
         
        Provisions for credit losses continued to come down to reach €16m in 3Q17 (-67% vs. 3Q16) and €94m in 9M17      (-46% vs. 9M16).
         
        Pre-tax profit climbed 27% YoY in 9M17.

ROE after tax and excluding IFRIC 21 came out unchanged at 11.5% in 3Q17 relative to a year earlier and rose 4.1pp again on a YoY basis in 9M17, thanks notably to a tight grip on RWAs (-7% YoY).

Excluding CVA/DVA effects, net revenues from Global Markets increased 17% YoY to €1.500bn in 9M17. This growth was achieved despite a slowdown in 3Q17, particularly in FIC-T, due to last year's relatively high basis of comparison as 3Q16 benefited from the volatility that followed the Brexit vote at end-June 2016.

FIC-T posted net revenues of €259m in 3Q17 and €1.017bn in 9M17 (+13% vs. 9M16). The Rates segment saw revenues increase 31% YoY in 9M17, fueled by robust client activity. The Securities Financing Group⁽¹⁾ and GSCS segments also performed strongly over the period, expanding revenues by 39% and 10% respectively.

Equities grew net revenues by 26% YoY in 9M17, despite weak volatility in 3Q17 which led to a 4% decline in revenues vs. 3Q16.

Net revenues from Global Finance & Investment Banking progressed 8% YoY in 9M17 to reach €1.279bn and were relatively stable YoY in 3Q17.

Within Global Finance, origination activities lifted revenues 11% YoY in 9M17. New structured financing production remained relatively flat during the period, though GEC and Real Estate Finance both enjoyed strong momentum. Aviation, Export & Infrastructure finance also fared very well in 3Q16 (new production up 47% in 3Q17 vs. 3Q16).

Investment Banking and M&A expanded revenues by 44% in 9M17 vs. 9M16, with M&A standalone showing an 82% increase during the same period.

(1)     Merger of the Fixed Income and Treasury businesses' repo and collateral management activities

 
Specialized Financial Services
Data excludes exceptional items⁽¹⁾

1. See note on methodology and excluding IFRIC 21 impact on the calculation of the cost-income ratio and ROE
2. Excluding capital gain on real-estate asset in 2Q16

Net revenues from Specialized Financial Services grew 5% YoY in 3Q17, with Specialized Financing rising 6% and Financial Services 3% in the same period. For 9M17 as whole, net revenues increased 2% to €1.032bn.

In 3Q17, revenues progressed 13% YoY in Sureties & Guarantees and 6% in Leasing and Consumer Finance. Employee Savings Schemes and Payments improved net revenues by 6% and 4% respectively, during the same period.

Operating expenses in Specialized Financial Services increased 5% YoY in 3Q17. After restating for changes in the scope of consolidation, expenses rose 3% and the cost-income ratio excluding IFRIC 21 declined 80bps YoY to 66.2%.

Provisions for credit losses worked out to €13m in 3Q17 and €49m in 9M17.

Pre-tax profit amounted to €101m in 3Q17, up 3% vs. 3Q16.

ROE after tax and excluding IFRIC 21 equated to 14.8% in 9M17 vs. 16.3% in 9M16 excluding the €31m gain on the divestment of a building booked in 2Q16 under "Other assets". ROE was unchanged in 3Q17 at 14.5%.

Financial Investments         
 Data excludes exceptional items⁽¹⁾

(1) See note on methodology

Net revenues from Financial Investments grew 25% YoY in 3Q17, buoyed by markedly higher revenues at Coface, testifying to the initial benefits of the measures implemented as part of the Fit-to-Win plan. The strategy of divesting Corporate Data Solutions entities was completed by the sale of Ellisphère in 2Q17 which generated a €22m gain booked under "Gain or loss on other assets".

Pre-tax profit amounted to €57m in 9M17 vs. a €7m loss in 9M16.

In 3Q17, Coface net revenues advanced 56% YoY at constant scope and exchange-rate (+35% in current terms) and reached €163m. Claims expense was well down, particularly in Asia and North America, with the loss ratio falling to 46.3% in 3Q17 vs. 72.4% in 3Q16. The cost ratio worked out to 35.4% vs. 36.9% in 3Q16, excluding the public guarantee management business. All in all, the combined ratio net of reinsurance amounted to 81.6%.

In 9M17, Coface net revenues advanced 19% YoY at constant scope and exchange-rate (+7% in current terms) and reached €439m. Excluding the public guarantee management business - sold on January 1, 2017 - the combined ratio net of reinsurance would have worked out to 89.8% in 9M17, 10pp lower than the 99.8% in 9M16. The loss ratio was down 10.2pp relative to 9M16 at 54.4% thereby leading to a full-year 2017 target of below 54% (vs. 58% previously). Cost savings amounted to €12m in 9M17 and were ahead of the trajectory set out in the plan.

Coface confirmed the objectives included in the strategic plan, namely €30m of cost savings in 2018 and a combined ratio of 83% throughout the cycle. 

Appendices

Note on methodology:

The results at 09/30/2017 were examined by the board of directors at their meeting on 11/07/2017.
Figures at 09/30/2017 are presented in accordance with IAS/IFRS accounting standards and IFRS Interpretation Committee (IFRIC) rulings as adopted in the European Union and applicable at this date.

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