Natixis: Third Quarter 2019 Results

Underlying net revenues¹ up +3% YoY in 3Q19 primarily driven by Global finance (+8% YoY). Growth of Global markets activities (+3% YoY) and of our Green & Sustainable Hub. Leading innovation in sustainable finance with the roll-out of Natixis’ Green Weighting Factor initiative

Costs under control, down at constant exchange rate by -2% YoY in 3Q19 and -3% in 9M19

Cost of risk increasing vs. 3Q18 (decreasing vs. 2Q19)

Insurance: Continued growth momentum

Underlying net revenues¹ up +7% YoY with a positive jaws effect both in 3Q19 and 9M19

Underlying RoE¹ ~30% in 9M19, largely in line with the target set for New Dimension by 2020

Payments: Continued growth with positive jaws

Underlying net revenues¹ up +9% YoY in 9M19 with a positive jaws effect both in 3Q19 and 9M19

Increase in business volumes from Dalenys & PayPlug, up more than +20%

SUSTAINABLE VALUE CREATION AND FINANCIAL STRENGTH

Organic capital creation of ~30bps in 3Q19 and ~100bps in 9M19. Basel 3 FL CET1 ratio² at 11.5% as at September 30, 2019, well above our 2020 target

Underlying net income¹ at €400m in 3Q19 and €955m in 9M19

Underlying RoTE¹ at 9.5% in 3Q19 and 10.2% in 9M19 considering a normalized cost of risk of ~30bps

REINFORCING ROBUSTNESS THROUGH SEVERAL MEASURES

Focus on the development and the reinforcement of existing expertise rather than on potential acquisitions while maintaining Natixis’ dividend policy. This translates into the reinforcement of the 2020 Basel 3 FL CET1 ratio target² from 11% to 11.2% (see page 3)

Reinforcement of Natixis Investment Managers’ multi-boutique model with various initiatives aimed at strengthening governance and risk controls (see page 3)

Evolution to Natixis’ governing bodies (see ad hoc press release) and implementation of transversal organizational projects

Figures restated as communicated on April 11, 2019 following the disposal of the retail banking activities. See page 14 for the reconciliation of the restated figures with the accounting view [1] Excluding exceptional items. Excluding exceptional items and excluding IFRIC 21 for cost/income, RoE and RoTE (see note on methodology) ² See note on methodology

“In the third quarter of 2019 our revenues grew in line with or faster than our costs in each of our businesses demonstrating our agility and the flexibility of our cost base as well as the relevance of our business model. Natixis is only lightly exposed to the low interest rate environment - net interest income represented only 8% of our revenues in the first nine months of 2019 - result of our asset light strategy and a major advantage in the current context. Having profoundly transformed our businesses, and facing a fast evolution in the environment, we have chosen to further strengthen our robustness, having notably announced today a series of measures to support this objective. We meanwhile remain focused on implementing our strategic plan New Dimension, which is proving itself to be highly suited to the current environment”.
François Riahi, Natixis Chief Executive Officer

3Q19 RESULTS

On November 7, 2019, the Board of Directors examined Natixis’ third quarter 2019 results.

Natixis’ underlying net revenues are up +8% YoY across the businesses with AWM up +12% YoY (mainly driven by performance fees), Payments up +8% YoY, Insurance up +7% YoY and CIB up +3% YoY.

Underlying expenses are up +6% YoY reflecting solid revenue growth across the businesses, mainly in Asset management due to the flexible structure of the cost base. Investments (e.g. strategic projects, support functions) keep on being made while maintaining a tight cost control (e.g. CIB expenses down YoY despite top-line growth). Positive or neutral jaw effect across all business lines at constant exchange rate and cost/income ratio improvement. The underlying cost/income ratio¹ is at 72.6%, down -70bps vs. 3Q18.

The underlying loan loss provisioning decreased QoQ although up YoY on a very low basis, above its normalized level. Expressed in basis points of loans outstanding (excluding credit institutions), the businesses’ underlying cost of risk worked out to 41bps in 3Q19 (32bps on a 12-month rolling basis) vs. ~30bps normalized.

Net income (group share), adjusted for IFRIC 21 and excluding exceptional items reached €353m in 3Q19. Accounting for exceptional items (+€15m net of tax in 3Q19), and IFRIC 21 impact (+€47m in 3Q19) the reported net income (group share) in 3Q19 is at €415m.

Businesses’ underlying RoE¹ reached 11.6% in 3Q19.

Natixis’ underlying RoTE¹ reached 9.5% in 3Q19 excl. IFRIC 21.

Reinforcement of the 2020 Basel 3 CET1 FL ratio target (see note on methodology) to 11.2% i.e. a +20bps increase vs. previous target of 11.0%:

• decrease in Natixis’ 2018-2020 M&A budget from ~€1bn to ~€0.8bn (of which ~€0.5bn already invested) with a focus on existing perimeter in the current environment;
• dividend policy unchanged with a minimum 60% pay-out ratio and distribution of excess capital;
• increased robustness in the context of regulatory changes to materialize over the years to come, allowing Natixis to ensure sustainable value creation

                  
Enhanced governance and control framework at Natixis Investment managers: In addition to previously announced appointment of newly-created position of COO, internal review leading to a number of initiatives including:

• split of Natixis IM risk and compliance functions;
• creation of NIM Head of Risk role separate from NIM Head of Compliance and with all affiliates to have a named CRO in addition to a named CCO;
• risk monitoring framework to evolve for a more comprehensive view into current/evolving risks at the level of each affiliate

¹ See note on methodology. Excluding exceptional items and excluding IFRIC 21

9M19 RESULTS¹

Natixis’ underlying net revenues are higher vs. 9M18 for the vast majority of the businesses with Payments up +9% YoY, AWM up +7% YoY, Insurance up +7% YoY and IB/M&A up +2% YoY. 9M19 revenue evolution to be put in the context of a historically high 1H18, particularly 1Q18 for Global markets and 2Q18 for Global finance; these two activities featuring growth in 3Q19.

Underlying expenses are well under control and up +2% YoY at constant exchange rate reflecting solid revenue growth across most businesses, investments being made (e.g. strategic projects, support functions) and the increase in the SRF contribution. CIB costs down -3% YoY at constant exchange rate. The underlying cost/income ratio² is at 72.0%, up +250bps vs. 9M18.

The underlying loan loss provisioning increased vs. a low 9M18 due to a large single file impact in 2Q19. Expressed in basis points of loans outstanding (excluding credit institutions), the businesses’ underlying cost of risk worked out to 43bps in 9M19.

Underlying tax rate at ~27% in 9M19. YoY increase in minority interests mainly due to a higher performance from some European AM affiliates.

Net income (group share), adjusted for IFRIC 21 and excluding exceptional items reached €1,002m in 9M19. Accounting for exceptional items (+€571m net of tax in 9M19) and IFRIC 21 impact (-€47m in 9M19), the reported net income (group share) in 9M19 is at €1,526m.

Businesses’ underlying RoE² reached 12.2% in 9M19.

Natixis’ underlying RoTE² reached 9.8% in 9M19 excl. IFRIC 21 and 10.2% with a normalized cost of risk³.

¹ Figures restated as communicated on April 11, 2019 following the disposal of the retail banking activities. See page 14 for the reconciliation of the restated figures with the accounting view ² See note on methodology. Excluding exceptional items and excluding IFRIC 21 ³ Normalizing the 9M19 cost of risk at 30bps

3Q19 & 9M19 RESULTS
Exceptional items

€586m positive net impact from the disposal of the retail banking activities in 1Q19: €697m capital gain minus €78m income tax minus €33m minority interests

TRANSFORMATION & BUSINESS EFFICIENCY

Investment costs by reporting line

Unless specified otherwise, the following comments and data refer to underlying results, i.e. excluding exceptional items (see detail p5)

Asset & Wealth Management

Underlying net revenues from Asset & Wealth Management (AWM) are up +12% YoY in 3Q19 (+10% at constant exchange rate), illustrating the resilience of our multi-boutique model focused on alpha generation. Asset management (excl. Employee savings plan) underlying net revenues, including performance fees, are up +9% YoY in North America (€450m) and up +26% in Europe (€303m) in 3Q19 (+1% at €1,222m and +20% at €837m in 9M19 for North America and Europe respectively). Wealth management net revenues are up +3% YoY in 3Q19.

The Asset management overall fee rate excluding performance fees is at ~30bps in 9M19, in line with 1H19 levels and with New Dimension target (slightly down QoQ due to mix effect). For European affiliates, it is at ~16bps in 9M19 and ~28bps excl. Life Insurance General Accounts. For North American affiliates, it is at ~38bps vs. ~40bps in 9M18 mainly due to a lower share of average AuM from Harris following the 4Q18 market effect. Performance fees reached €192m in 3Q19 and €362m in 9M19 (~15% of AM revenues vs. ~13% in FY18) mainly driven by H2O and AEW.

Asset management net flows on LT products reached ~ €(4)bn in 3Q19 more than offset by supportive market and FX impacts. The trend improved throughout the quarter: from >€(2)bn in July to ~€(0.5)bn in September. In Europe, ~€2bn net inflows on LT products in 3Q19 mainly driven by Real asset strategies and Mirova. In North America, a bit more than ~€(5)bn net outflows in 3Q19 primarily driven by Harris and Loomis Fixed income strategies. WCM equity strategies providing a growth relay to Harris in the 3Q19 environment.

Asset management AuM reached €921bn as at September 30, 2019 and are up +3% QoQ (+14% YTD), above their 4Q18 average level both for Europe and North America. On top of the net flows on LT products described above, 3Q19 was also marked by ~(1)bn net outflows on low-margin money-market products, a positive market effect of +€9bn and a positive FX/perimeter effect of +€20bn. H2O AuM stand at ~€28bn vs. ~€26bn at end-June driven by a strong market effect. Wealth management AuM reached €30.3bn as at September 30, 2019 with €0.9bn positive net inflows this quarter.

Underlying expenses growing in line with the revenues (+10% in 3Q19 and +3% in 9M19, both at constant exchange rate) reflecting in part the variable structure of the cost base in AM (higher performance fees) and investments being made in new initiatives and digitalization/IT as well as MIFID 2 impact.

The underlying cost of risk is attributable to a wealth management file.

The underlying RoE² reached 13.4% in 3Q19 and 13.5% in 9M19.

¹ Asset management including Private equity and Employee savings plan ² See note on methodology. Excluding exceptional items and excluding IFRIC 21

Unless specified otherwise, the following comments and data refer to underlying results, i.e. excluding exceptional items (see detail p5)

Corporate & Investment Banking

Underlying net revenues are up +3% YoY in 3Q19. Revenue evolution largely driven primarily by Global finance, up +8% YoY in 3Q19 and secondarily by Global markets, up +3% YoY. Investment banking/M&A has been impacted by some delay in fee recognition expected for 4Q19.

Global markets net revenues up +3% YoY in 3Q19. 9M19 revenue evolution balanced between FICT and Equity and reflecting a high base, especially in 1Q18. FICT net revenues up +2% YoY in 3Q19 despite tough market conditions and very volatile long-term interest rates. Continued good performance in Credit especially in the US. Less favorable environment for Rates given flat yield curve at unprecedented levels with less jumbo transactions although client activity remains stable. Good performance from FX with major currencies regaining volatility. Equity net revenues down a modest €3m YoY in 3Q19. Good performance from the US and continued diversification with solid commercial successes, especially in Convertibles and Green finance. Global finance net revenues up +8% YoY and +11% QoQ with all Real Assets business lines featuring YoY growth (Aviation, Real Estate and Infrastructure) and slightly lower revenues from Energy & Natural Resources. Focus on distribution after several quarters of very strong loan origination. Distribution rate on Real Assets at ~64% in 3Q19, up +1pp YoY and significantly up QoQ. Investment banking and M&A net revenues up +2% YoY in 9M19 and down YoY in 3Q19. Good contributions from our APAC M&A boutiques. Proportion of revenues generated from service fees at ~38% in 3Q19 and ~40% in 9M19².

Underlying expenses are well under control and down -2% YoY at constant exchange rate in 3Q19 (-3% YoY in 9M19). This reflects lower variable costs and ongoing initiatives to improve efficiency despite investments being made to develop our sectorial approach as well as control functions.

Underlying cost of risk is up vs. a very low 3Q18 and is above its normalized level.

Underlying RoE¹ of 8.6% in 3Q19 and 9.2% in 9M19. Normalizing for the cost of risk³, the 9M19 RoE would have reached ~10%. RWA are up +2% YoY in 3Q19, in line with New Dimension guidance.

¹ See note on methodology. Excluding exceptional items and excluding IFRIC 21 ² ENR, Real Assets, ASF ³ Normalizing the cost of risk at 30bps

Unless specified otherwise, the following comments and data refer to underlying results, i.e. excluding exceptional items (see detail p5)

Insurance

Banking view

Underlying net revenues up +7% YoY both in 3Q19 and 9M19 with growth across the board.

Underlying expenses up +6% YoY both in 3Q19 and 9M19, translating into a positive jaw effect and a cost/income ratio improvement, broadly in line with the 2020 target of ~54%.

Underlying gross operating income up +8% YoY both in 3Q19 and 9M19.

Underlying RoE¹ at 29.2% in 9M19 largely in line with the 30% target set for New Dimension by 2020.

Insurance view

Global turnover² €2.9bn in 3Q19, up +5% YoY (+3% in 9M19 at €9.5bn).

Life and Personal protection: €2.5bn earned premiums² in 3Q19, up +4% YoY (+2% in 9M19).

• Total AuM² at €66.5bn as at end-September 2019, up +2% QoQ and +11% YTD, driven by €1.2bn of net inflows² in 3Q19 (€4.5bn YTD).
   
• Unit-linked AuM² at €16.5bn as at end-September 2019, up +4% QoQ and +17% YTD, driven by €0.4bn of net inflows² in 3Q19 (37% of total net inflows). UL products accounted for 28% of gross inflows in 3Q19, above the French market³.
   
• Personal protection: earned premiums up +8% YoY in 3Q19 at €0.2bn (+11% in 9M19).

P&C: €0.4bn earned premiums in 3Q19, up +9% YoY (+6% in 9M19). The combined ratio reaches 92.3% in 9M19
(+0.4pp YoY).

The non-life equipment rate at the end of September is at 26.8% (+0.3pp QoQ) for Banques Populaires and at 29.8% (+0.3pp QoQ) for Caisses d’Epargne.

¹ See note on methodology. Excluding exceptional items and excluding IFRIC 21 ² Excluding reinsurance agreement with CNP ³ Source: FFA

Unless specified otherwise, the following comments and data refer to underlying results, i.e. excluding exceptional items (see detail p5)

Payments

Underlying net revenues up +9% YoY in 9M19 and +8% in 3Q19 (residual perimeter effects left). ~40% of 9M19 revenues realized with direct clients (+2pp vs. 9M18).

• Payment Processing & Services: Steady +4% YoY revenue growth in Natixis Payments’ historical activities in 3Q19 (+5% in 9M19). Number of card transactions processed up +13% YoY in 3Q19 (+10% in 9M19). Pioneer in the implementation of SWIFT gpi for instant cross-border payments, a key solution for CIB Trade & Treasury Solutions clients.
   
• Merchant Solutions: Solid business volumes generated by Dalenys and PayPlug, up +20% YoY in 3Q19 (+23% in 9M19). Partnership between PayPlug and Shopify to foster business growth with French and Italian SMEs.
   
• Prepaid & Issuing Solutions: Robust growth in 3Q19 driven by meal vouchers (+8% YoY) and the contribution of our Benefits & Rewards activity (Titres Cadeaux and Comitéo). Number of mobile payments more than x2.6 vs. 3Q18.

¹ See note on methodology. Excluding exceptional items and excluding IFRIC 21
Unless specified otherwise, the following comments and data refer to underlying results, i.e. excluding exceptional items (see detail p5)

Financial Investments

The net combined ratio of Coface¹ reached 78.1% in 3Q19 vs. 82.8% in 3Q18 (76.8% 9M19 vs. 79.0% 9M18) with a cost ratio moving from 34.4% to 31.0% (from 34.0% 9M18 to 31.7% 9M19) and a loss ratio moving from 48.5% to 47.1% (from 45.0% 9M18 to 45.1% 9M19).

Corporate Center

Underlying net revenues from the Corporate Center of €2m in 3Q19.

Underlying expenses excluding SRF contribution up +€10m YoY in 3Q19 mainly due to various positive elements impacting 3Q18.

Underlying pre-tax profit contribution broadly unchanged YoY in 9M19 excl. SRF.

¹ Reported ratios, net of reinsurance

FINANCIAL STRUCTURE

Basel 3 fully-loaded ratios¹
Natixis’ Basel 3 fully-loaded CET1 ratio worked out to 11.5% as at September 30, 2019.

• Basel 3 fully-loaded CET1 capital amounted to €11.4bn
• Basel 3 fully-loaded RWA amounted to €98.8bn

Based on a Basel 3 fully-loaded CET1 ratio of 11.5% as at June 30, 2019, the respective 3Q19 impacts were as follows:

• 3Q19 results: +43bps
• 3Q19 ordinary dividends: -22bps
• 3Q19 RWA and other effects: -13bps

Basel 3 regulatory ratios¹
As at September 30, 2019, Natixis’ Basel 3 regulatory capital ratios stood at 10.5% for the CET1, 12.7% for the Tier 1 and 15.0% for the total capital ratio.

• Core Tier 1 capital stood at €10.4bn and Tier 1 capital at €12.5bn
• Natixis’ RWA totaled €98.8bn, breakdown as follows:
  • Credit risk: €66.2bn
  • Counterparty risk: €7.0bn
  • CVA risk: €1.6bn
  • Market risk: €10.7bn
  • Operational risk: €13.3bn

Book value per share
Equity capital (group share) totaled €19.3bn as at September 30, 2019, of which €2.0bn in the form of hybrid securities (DSNs) recognized in equity capital at fair value (excluding capital gain following reclassification of hybrids).

Natixis’ book value per share stood at €5.44 as at September 30, 2019 based on 3,150,728,343 shares excluding treasury shares (the total number of shares being 3,153,078,482). The tangible book value per share (after deducting goodwill and intangible assets) is €4.14.

Leverage ratio¹

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