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Edited Transcript of KN.PA earnings conference call or presentation 2-Aug-19 7:00am GMT

Half Year 2019 Natixis SA Earnings Call

Paris Aug 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Natixis SA earnings conference call or presentation Friday, August 2, 2019 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* François Riahi

Natixis S.A. - CEO

* Nathalie Bricker

Natixis S.A. - CFO

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Conference Call Participants

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* Flora A. Benhakoun

Deutsche Bank AG, Research Division - Research Analyst

* Guillaume Tiberghien

Exane BNP Paribas, Research Division - Head of the European Banks Team & Analyst of Banks

* Jacques-Henri Michel Gaulard

Kepler Cheuvreux, Research Division - Head of Banks Sector Research

* Jean-Francois Neuez

Goldman Sachs Group Inc., Research Division - Executive Director

* Jonathan Richard Kuczynski Pierce

Crédit Suisse AG, Research Division - Former Head of Banks Equity Research

* Maxence Patrick Patrick Laurent Le Gouvello du Timat

Jefferies LLC, Research Division - Equity Analyst

* Omar Fall

Barclays Bank PLC, Research Division - Analyst

* Pierre Chedeville

CM-CIC Market Solutions, Research Division - Analyst

* Tarik EI Mejjad

BofA Merrill Lynch, Research Division - Equity Analyst

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Presentation

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François Riahi, Natixis S.A. - CEO [1]

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It's not the best date for an analyst call. Maybe 4 key messages before we move to the full presentation of this second quarter results. First, I think this second quarter underlines the strength and the robustness and the quality of our business model. I remind a few elements of this business model: asset light, not impacted by the level of interest rates, generating a large amount of organic capital with an agility of the balance sheet. I think these are major assets in the current environment.

The second message is about H2O, which has been an event of the quarter. I think these results underline there's not much to do about (inaudible). First, net inflows in H2O are positive in July, which shows that the episode of outflows is behind us. Second, the level of assets under management in H2O at the end of the quarter are higher than they were 1 year ago. So this level was not a concern then. It's not neither a concern now. The level of performance fees that we have experienced in the second quarter is high, which shows that the clients that have chosen to exit the funds in H2O have made a significant amount of capital gain. And that's also something to underline.

The third message is about the fact that last quarter, I mentioned 2 elements, one that I was expecting global market results to be better in the Q2 than in the Q1, especially on fixed income, and this is the case. And two, I mentioned that in an environment where CIB revenues were harder to get, we will be extra cautious on cost, and obviously it's also the case, as you have seen in the figures.

And last but not least, on this quarter, I would like to underline something that is maybe to be well noted. We are working today on a very strategic project for our asset management business, which is a project of partnership with La Banque Postale Asset Management. It has been, I would say, announced during the quarter. Of course, it's still a project. There are a lot of details to define, but this is for me, a major achievement. And when I was considering what could be the best deals we could do to strengthen our asset management business, this one was definitely top of list. So I think it's a very important point, and I will come back to it later.

So now if we move to Slide 3. The second quarter, as I mentioned, illustrates the diversification and the robustness of our business model. We have managed to deliver stable revenues compared to last year, which was a historically good quarter in a more challenging environment. In Asset & Wealth Management, our active positioning has allowed us to experience solid revenue growth, and the strength of our multi-boutique model is demonstrated by the fact that with close to EUR 6 billion net outflows at H2O over the quarter our other affiliates have kept on delivering with more than EUR 3 billion net inflows on long-term products, including, which is very important, the first positive quarter in the U.S. since last year. I think that I won't come back to -- on H2O, I mentioned about the new development, and I'll come back to it with the La Banque Postale Asset Management. But all in all, I think this quarter is a very good quarter for Asset Management and showing the strength of our multi-boutique model.

On CIB, the diversification of our revenue base and an increasing focus on cost management has translated into an ROE close to 12% this quarter under a normalized cost of risk of 30 bps. And we use this because, as you have seen, we have experienced this quarter, I would say, a provision on a large single file in France, which blurs a little bit the figures.

In Insurance and Payments, we continue to deliver strong growth with positive jaws. In terms of profitability, our return on tangible equity stands at 9.6% in the second quarter. But if we normalize, again, the cost of risk, I would say, the underlying number is more 10.8% with a solid capital generation of 40 bps over the quarter to reach 11.5% of core Tier 1 Basel fully loaded.

I'm not going to spend much time on Slides 5 and 6, which are the raw numbers. You have gone through them. And I'll move to Slide 7. Again, as usual, not many exceptional items this quarter. The 2 usual suspects, the FX impact on our deeply subordinated notes and the cost of our Transformation & Business Efficiency program, which altogether have a negative net P&L impact of EUR 17 million compared to EUR 25 million positive last year, especially due to the FX impact on the deeply subordinated notes. I also remind you that we finalized last quarter the disposal of our retail banking activities, which led to EUR 586 million net positive impact at that time.

Regarding our second quarter 2019 results. Again, I would like to highlight the diversification of our business model that has allowed us to maintain our revenue stable compared to last year, which was a very good quarter, with revenue growth across most of our businesses. If you look at our 4 businesses, we have 3 businesses with a very high level of growth. I think something that is also important as the CIB revenues have decreased compared to a very high base in 2018, the cost management has intensified, as I mentioned earlier. And these efforts have paid off with expenses only up -- down minus 7% year-on-year at constant exchange rate, which leaves the global level of our expenses up by 1% year-on-year at constant exchange rates.

Despite these good performances across revenues and costs, our pre-tax profit is negatively impacted by an elevated cost of risk this quarter due to a large single file in France. Under a normalized cost of risk, our businesses would have generated a return on equity close to 14%, and Natixis' return on tangible equity close to 11%.

On Slide 9, just a quick reminder on our year-to-date performance, which is to be put in the context of a very strong first half of 2018, during which we generated a return on tangible equity close to 15.5% with CIB that was notably featuring a return on equity above 17% that we have never taken for something we could reproduce every quarter. So cost of risk is an important topic of this result. Again, this quarter is a bit exceptional because we have been impacted by a large single file in France, driving our cost of risk up to 63 bps, which is far above our normalized level.

What is also important to mention is that cost of risk impact is actually a small part of our businesses, which is the portfolio management in our CIB. That's why we have favored, as a measure, the cost of risk on net revenues. Definitely, in the second quarter of 2019, it was 4.8%. It's above what we want to achieve. In our New Dimension plan, we mentioned the cost of risk on net revenues below 3%. You see that on this semester, we come closer to this metric with 3.2%, and we expect it to dilute further in the second half as the level of the second quarter is exceptional.

Now if we come to the financial structure, I think it's a very important point always. First, I would like to mention that we now take into account the Irrevocable Payment Commitment deduction in our core Tier 1, which we're not -- we are doing only as a pro forma until then. So it's just, I would say, a perimeter effect. And compared to this new base of 11.4%, once we deduct the Irrevocable Payment Commitment, we have increased our core Tier 1 ratio by 10 bps. This has been possible through 38 bps of organic capital creation, both through our results and the monitoring of our RWAs. And these RWAs increased, I would say they have -- an increase in the RWA is linked to the acquisition of WCM Investment Management, which shows that on the businesses we are monitoring have been quite good. So 38 basis points of organic capital creation. This allows us to fund for the strategic operations we have closed this quarter, meaning WCM, that I just mentioned; Fiera Capital; Massena Partners and Azure Capital and of course, to provision for our dividends and still increasing our core Tier 1 ratio at a level that is, I would say, above our 2020 target of 11%.

Now before I leave the floor to Nathalie for a deeper dive in our businesses' performance, I want to spend a little bit of time on this ambitious project that we are working on with La Banque Postale to create a new asset management company that will gather the strength of Ostrum and La Banque Postale Asset Management on managing life insurance assets and euro fixed income. This is a major project. We are changing the face of this sector in Europe on these type of assets by creating one of the European leaders of the field. This project has a lot of merit. One, you know that CNP is the first client of Ostrum. So now this new company will manage all the assets of CNP. Of course, the ones of Natixis Insurance, too, and will have a critical mass to manage these life insurance assets and euro fixed income at the scale that is needed for this type of business. Two, by doing so, we will have a development capability to consolidate as a sector and being a provider for life insurers that would consider that they don't have the critical mass to continue to manage their asset management. That said, I think we will be able to offer a very strong value proposition for this market. So it's a project that, at the same time, bears, of course, operational efficiency because we'll combine 2 companies that are serving at least one very large client incoming. And also, it's a development project, and that's a very exciting project for our Asset Management, where we will have our multi-boutique model, and we will have also a major asset manager for life insurance assets and euro fixed income with critical mass. I would say that, of course, work is in progress. We expect to close the deal at the second quarter of 2020. It's a large deal. It's a large transaction. And we are working on it with our partners at La Banque Postale. So that's it for my part.

And now I leave the floor to Nathalie for the business presentation.

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Nathalie Bricker, Natixis S.A. - CFO [2]

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Okay. Thank you, François, and good morning to all of you. And so starting, as usual, with the Asset & Wealth Management business line. And so a few key highlights of the quarter.

Here on Page 14, you can see that our revenues are up by 11% year-on-year in the second quarter, with a strong positive effect and a 15% return on equity. Note that revenues are up even excluding performance fees, which accounts for close to 16% of our asset management revenues this quarter. This demonstrates the ability to create value through performance, which is key to active asset management.

And I would add to that, that performance fees do not come from a single affiliate, which highlights the diversification of our strategies, with AEW notably featuring strong performances so far this year. It's also worth noticing that our fee rate remains at 30 basis points, which is in line with our New Dimension target.

Now moving on Slide 15. On the flow side, we experienced EUR 2 billion net outflows on long-term products, of which close to EUR 6 billion coming from H2O, following the heavy press coverage at the end of June. H2O is back to positive net inflows in July, and the situation has had no impact whatsoever on our other affiliates, which have been gathering more than EUR 3 billion of new money on long-term products this quarter, illustrating the key strengths of the multi-boutique model.

In particular, I'd like to emphasize the performance of our North American affiliates, with roughly EUR 2 billion net inflows this quarter, the first positive print since Q2 last year, primarily driven by fixed income and growth equity strategies, notably at Loomis.

In terms of Assets under Management, they are up by 5% quarter-on-quarter at EUR 898 billion, including the EUR 35 billion of WCM, an affiliate that we do not control but for which we recognize some dividend income as well as some distribution fees on the assets raised since we have established agreements with them as part of the deal structure.

Now moving on to CIB on Page 16. As François mentioned earlier, the quarter has been impacted by an elevated cost of risk, mainly driven by a large single file. This distorts this picture a little bit since under a normalized cost of risk of 30 basis points, we would have reached a return on equity in CIB close to 12% this quarter and double-digit year-to-date, which illustrates our ability to create value. This can be achieved through a solid and increased diversification of our revenues, together with a strict cost management, on which we try to put more emphasis in the current environment. As a result, we've managed to lower our cost base by roughly 7% at constant exchange rate this quarter, despite investments being made, especially to develop our sectorial approach across global finance and investment banking also as well as to reinforce our support and control sanctions.

Now on CIB, again, if we focus a bit more on the revenue side, the second quarter has been marked by the good resilience of our global market activities, which are significantly up quarter-on-quarter and slightly down year-on-year, mainly due to a base effect in equity. In fixed income, our revenues are up by 2% year-on-year, above EUR 300 million, which is actually our highest quarter for more than a year. This has been achieved through a good performance in credit as well as pick-up in rates while maintaining a high selectivity and despite challenging market conditions, especially on the flow side. But as you may know, our strategy is much more solution-oriented.

In equity, our revenues are down year-on-year, although we remain close to the Q1 2019 levels, which we indicated on the previous conference call, is more representative of the run rate following the performance of the fourth quarter.

In Global finance, the performance of the quarter shows it's a business with very solid and stable ground with some jumbo transactions that can happen 1 quarter or another. If you remember well, this was the case in Q2 last year, which was the best quarter we ever had with some outstanding performances, especially in U.S. real estate, but also in Aviation, which explains the year-on-year evolution of our revenues. However, the pipeline buildup for the coming quarter looks fairly robust, and I would also highlight good activity levels in Q2 2019 for energy and natural resources as well as Europe real estate, with distribution rates on real assets that remain comfortably above 60%.

And finally, looking at Investment banking and M&A, we continue to grow with good performance pretty much across the board and some notable performance from PJ Solomon in the U.S. on the M&A side.

So looking at Insurance now, on Page 18, as you can see, this is very much business as usual since we are experiencing the same growth rate for revenues, costs and gross operating income both in Q2 2019 and in the first semester for 2019. The cost/income ratio at 54% and the return on equity at 30% that we've delivered in the first semester 2019 so far are in line with our 2020 target.

Now coming to the growth drivers. As you can see on Page 19, the growth drivers for Life and Non-Life insurance are working very well. On one hand, the stock of life insurance assets under management is growing fast. It's a plus 8% year to date, with a share of unit-linked products that keep on increasing. On the other hand, an equipment rate that also keeps on improving across the 2 retail networks. Premium growth has been fairly strong in the second quarter at roughly 10% year-on-year and with a share of unit-linked that remains above the French market average. The combined ratio of our property and casualty activities has also improved and remain well below our guidance of 94%.

Now moving to payments, on Slide 20. A very similar picture for payments with a solid revenue growth that comes together with a positive jaw effect and an improvement in the cost/income ratio. When it comes to the return on equity, I remind you that we are in a G-curve type of business since we've been investing to extend our capabilities across the value chain. Our 3 main business units are expanding with a steady growth across our processing activities, supplemented by the dynamism of our [syntax], and the initiatives being launched such as Xpollens in partnership with Visa, which is the white-label offering of "Payments in a box," integrating various payment solutions for fintechs and corporates.

In terms of EBITDA, which is a more common financial indicator of cross-payment companies, we've generated close to EUR 45 million in the first semester. And as you can see, we've grown by 18% year-on-year.

Financial Investments & Corporate Center, I'm not going to spend too much time on this slide since Coface has already published its results last week.

I'll now leave it to François to conclude.

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François Riahi, Natixis S.A. - CEO [3]

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Thank you, Nathalie. Well, an important element is that if you look at our New Dimension plan that has started on 1st January 2018, and if you adjust the one-off events, you see that we have, so far, generated an average return on tangible equity of 12.8% in an environment that has proved to be changing quite positive on the first semester 2018, deteriorating especially on the fourth quarter 2018 and the first quarter of 2019, and still challenging but improving in the second quarter of 2019.

If I look at all the businesses, I think we have achieved some good things. This quarter, we demonstrated that we have some strong growth engines on the revenue side and also capacity to increase our focus on cost management when it's needed.

Maybe 3 final elements. I think these results show, again, first, a strong business model. Two, an agility, and I think that's what we see on CIB costs this quarter. And three, I would like to underline that we experienced very positive strategic achievements in all our businesses. Investments on sectors in CIB and M&A are paying off. We have a major M&A deal with La Banque Postale Asset Management that we are working on today. In Insurance, we are building a full-fledged bank insurer, benefiting from the strength of the BPCE network, and the Korea partnership we announced last time has been a key milestone. And last but not least, we are progressing in building a unique payment business benefiting both from the strength of the BPCE networks and pure player fintechs. I think all our businesses are well on track in achieving their strategic goals.

So that's for the presentation. And now we are at your disposal with Nathalie to answer your question.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have one first question from Madame Flora Benhakoun from Deutsche Bank.

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Flora A. Benhakoun, Deutsche Bank AG, Research Division - Research Analyst [2]

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I have 2 questions, please. The first question is regarding the Asset Management business, whether you could please give us some more light on the inflows or outflows per affiliate. So which ones saw inflows and which ones saw outflows. The second question is regarding the Coface stake. I'm just surprised not to see you sell some more shares given that the share price is above the level at which you had sold in the past, providing you with a window which we had not had in a long time. So I just wanted to ask around your thinking around the Coface, please.

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François Riahi, Natixis S.A. - CEO [3]

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Thank you, Flora. Well, first, on Asset Management, as you know, we don't disclose the inflows and outflows for affiliates. A few highlights. We have seen a good performance of Loomis, notably in the U.S. We have also a good momentum in WCM. That has just joined us, but we -- you remember that the rationale for moving on WCM was to strengthen our capabilities on equities in the U.S., and this is proving to be very right. In Europe, Mirova is especially strong this quarter, and that's not a surprise because ESG is, of course, a major theme in the asset management field, especially in Europe. So clearly, our multi-boutique model is such that you have some, I would say, momentum for our different affiliates. It depends on, of course, on the evolution of the market, on the evolution of their own performance. But all in all, I think we see a good performance of our setup of affiliates this quarter.

About Coface, I won't comment on your question because I can't. If I just give a general comment about Coface, I think the company has gone through a real turnaround. The management has been very good in delivering their Fit to Win plan. I think the results that we have seen during the last quarters are very robust, especially on the 2 last quarters. It's not a very easy environment for insurance credit, so I think the company is in a good shape. We have always said that it's the financial investments, and of course, we'll manage it at what we consider is the best interest financially.

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Operator [4]

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We have one next question from Mr. Maxence Le Gouvello from Jefferies.

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Maxence Patrick Patrick Laurent Le Gouvello du Timat, Jefferies LLC, Research Division - Equity Analyst [5]

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Can we speak about the investment banking? Your target is to have revenues as a percentage of RWA above 6%. You're at 5.5% this quarter. Where you believe that you have some leverage to reach your 6% going forward?

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François Riahi, Natixis S.A. - CEO [6]

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Thank you, Maxence. Well, yes, our NPI on RWA is a little bit below our target at 5.5%. This, of course, has to do with a very tough market in terms of margins, a very tough competition, and of course, that's something we need to take into account. I think that, as you know, where we see more growth in our strategy in investment banking is in terms of sectorial approach. What does it mean sectorial approach? It means that we want to leverage more on the balance sheet we have in front of the 4 sectors that we have selected: energy and natural resources, infrastructure, aviation, and real estate, to generate more fees and especially more M&A and investment banking fees. To do that, we have invested in talents. And that's an important investment we have been making, choosing very experienced industry bankers, strengthening our M&A teams, working with our best experts in financing in a very unique setup of our sectorial approach. Of course, this takes a little bit of time to reach what we want to achieve. I think we are very happy with the investments we have made. We think we see really the traction with our clients, and we expect more to come.

In terms of IB and M&A with these sectors, that's an example of where we see, we can increase our NBI on RWAs. That's, I think, an answer to your question.

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Operator [7]

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We have another question from Mr. Guillaume Tiberghien from Exane.

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Guillaume Tiberghien, Exane BNP Paribas, Research Division - Head of the European Banks Team & Analyst of Banks [8]

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I want to come back on the previous question and maybe phrase it differently. Do you think you can, from now, increase back the ratio of RWA to earn revenues to RWA? Or whether you need to increase the RWA to grow revenues?

And the second question relates to the partnership with La Banque Postale. Presumably, it's a little bit too early to quantify the efficiency gains that you mentioned. But then maybe can you give us an idea of the combined cost base of the businesses that will be merged.

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François Riahi, Natixis S.A. - CEO [9]

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Thank you for your question. I think the first question is roughly the same. So maybe I can give you the same answer. OR you can refer to this because, yes, we think we can increase the NBI and RWAs using the levers that I mentioned.

On your second question, you're right. It's too early to give figures, so I understand. That's why I understand that you want figures, but we are at too -- an early stage to give figures. Definitely, again, it's -- it's both an operational efficiency play, but it's also a development play. And operational efficiency will be an important element, for sure. Because when we are talking about critical mass, that's exactly what we are talking about. But I think it's also a development play. But again, I'm sorry I cannot give you more color on the figures. Probably, we'll be able to do that at the full year results when we have progressed with La Banque Postale Asset Management on the project.

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Guillaume Tiberghien, Exane BNP Paribas, Research Division - Head of the European Banks Team & Analyst of Banks [10]

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Sorry. What's the cost base that you're merging with La Banque Postale?

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François Riahi, Natixis S.A. - CEO [11]

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So still, we are at a project mode. We have not defined completely the perimeter and so on, so I don't have a figure to give you now.

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Operator [12]

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We have another question from Mr. Jacques-Henri Gaulard from Kepler Cheuvreux.

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Jacques-Henri Michel Gaulard, Kepler Cheuvreux, Research Division - Head of Banks Sector Research [13]

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Yes. I'm going to be devil's advocate on the deal with La Banque Postale Le François, if you don't mind. And I'm looking forward to your answer.

Two things. First of all, the Insurance Asset Management business is extremely low-profitability business. You're going to make 3, 4 basis points. I hear your point about the critical mass, but it's not going to really move the dial on the earnings bit. And then the second thing that worries me a little bit more is that by merging those 2 platforms, you're actually turning into a platform, Amundi type. And I would like to know which extent the platform model like that is compatible with the multi-boutique model and it's not quite obvious for me.

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François Riahi, Natixis S.A. - CEO [14]

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Thank you, Jacques-Henri. We always need a devil's advocate. So clearly, I think what you said -- of course, we are talking about business where the fee rate is not in line with our targets. Our global targets, we are talking about a business where the fee rate is relatively low. But we are talking about a business, which requires expertise. It's not a commodity. It's an expertise business. You need to understand the needs of insurers. You need to master the regulation of Solvency II. You need to have good experts. So it's not a commodity. It's a business where you need operational efficiency. Of course, where you need critical mass, but it's a business that is at the core of our strategy today. We have always mentioned life insurance, asset management, as an element of our core strategy, given the fact that, of course, it has a lot of synergies with our Insurance business, and more broadly, with the Caisse d'Epargne and Banque Populaire network. So of course, it's at the core of our strategy. So clearly -- and I come to your second question, I've often said to some of you, that's my view on our asset management business that we had multi-boutique model both in the U.S. and Europe. And then we had Ostrum. Ostrum is not really a boutique. It's not working like a boutique. It doesn't have the entrepreneurial approach of a boutique, and it's a more industrial object. So with this deal, we are giving a very positive strategic perspective for Ostrum. And I think that moving forward, we have 2 legs in our asset management business, very strong multi-boutique model and a very strong life insurance asset manager and euro fixed income. And there will be synergies between the 2. As there are already synergies between some of our boutiques and Ostrum. So there will be synergies. But we have, I would say, a more diversified asset management business, which is, I think, a good thing.

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Operator [15]

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We have another question from Mr. Jean-Francois Neuez from Goldman Sachs.

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Jean-Francois Neuez, Goldman Sachs Group Inc., Research Division - Executive Director [16]

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I have a bit of very small questions. I just wanted to ask you, so you said that there was a high rate of revenues from last year -- for last year's Global Finance business. And I just wanted to know whether you'd be able to share a view as to what do you think about the base of the second half of last year going into the second half of this year for that business.

Second question I wanted to ask you is there has been a headline since the H2O developments that the ECB might be looking again at maybe your risk-weighted assets or your capital requirements in light of risk events that have taken place. I just wanted to understand whether you'd be expecting any impact on your densities or on your capital requirements.

Lastly, I wanted to ask you on the assets under management, which have been acquired this quarter, what you expected the fee rate and/or the cost base, I mean, or let's say, the gross operating profit to AUM to contribute in terms of maybe basis points or comparing that to the existing stock of revenue flows in assets under management.

And maybe lastly, a small one. Do you expect any capital spend on -- also, do you expect any negative capital impact from the Banque Postale potential deal next year.

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François Riahi, Natixis S.A. - CEO [17]

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Okay. Sorry. The line was not so good. So I'm not sure I --, we got all your questions. On the first one, I'm not sure I understood. So maybe -- the way I understood your question is what is the -- I would say the closest to the...

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Jean-Francois Neuez, Goldman Sachs Group Inc., Research Division - Executive Director [18]

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Sorry. My question was, is the base of last year challenging in the second half, you reckon? Like you said, the second quarter was challenging as a base last year? Do you think the second half of last year is also a challenging base or no?

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François Riahi, Natixis S.A. - CEO [19]

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No, I don't think so. No. No. Okay? So the answer is clearly no.

On the ECB, ECB is our home regulator. So we have a full team following us full time. And we have, I would say, daily exchanges with them. That's normal. Of course, they have, I would say, paid a lot of attention to what has happened in the fourth quarter last year and the Asian autocalls incidents. That makes sense. And we have discussions with them that are normal discussions with the regulator. So there's nothing to mention on this front.

And the fact that ECB is looking at what we are doing, asking questions and suggesting some -- I mean delivering recommendations on what we should do is nothing but normal.

On the further question, I'm not sure I have understood. Is it a question about WCM?

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Jean-Francois Neuez, Goldman Sachs Group Inc., Research Division - Executive Director [20]

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Yes. So you acquired, included in your slide about AUM, there is a good, I think, about EUR 30 billion, EUR 35 billion of acquired AUM in the quarter. And I just wanted to understand, in terms of revenue contribution going forward, what was the fee rate in comparison to your existing fee rate and/or at the pre-provision profit level if it is easier.

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Nathalie Bricker, Natixis S.A. - CFO [21]

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The contribution of WCM is made on dividend income, as we have said, and on fees on distribution for us is raised. And we see in the coming quarters how it goes. But as you may have seen, it's a strong effect in terms of assets under management, and it's performing well.

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François Riahi, Natixis S.A. - CEO [22]

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And it's -- I would say, very active. It's an active asset manager, whereas the fee rate is a high range of our different affiliates.

About La Banque Postale deal, no, we don't expect a negative impact on our capital, no.

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Operator [23]

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We have another question from Mr. Tarik EI Mejjad from Bank of America Merrill Lynch.

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Tarik EI Mejjad, BofA Merrill Lynch, Research Division - Equity Analyst [24]

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A couple of questions, please. First, on profitability. I mean you've been really trending well below your ROTE target in 2020 for the last few quarters. And it's mainly deriving from CIB, Global Finance and Global Markets. So you touched base on the dynamics in the revenue side. But my question will be more on costs. I mean are you thinking of implementing or getting to more cost discipline? I know that you do which in organic and progressive way, but would you be thinking to like sort of doing a one-off restructuring where you can see some low-hanging fruits of cost savings you can do? Because I don't think you have done that for a while.

And then the second question is on capital. The -- I just want understand in terms of dividends. So you had this remaining around EUR 2.5 billion of dividend you pay in the next 2 years. What if you sell Coface, there were some headlines -- or if you really build capital higher because you don't grow as much as you expected. Would you be keen to increase that level of dividend to keep your capital around 11% or you conservatively raise the buffers because of the uncertainties in terms of regulation, penalties and stuff like that?

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François Riahi, Natixis S.A. - CEO [25]

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Okay. So on your first question, I think that during the past years, we have been always looking to adjust our business model in CIB. We have reduced significantly in the past years our flow business on the market side. On this quarter, I think what you see under cost is the reflect, of course, a lot of attention to the, I would say, the general cost of CIB, but also some choices, some actuation that have been done here and there on where we see that we can improve our profitability. We do that, I would say, in the course of our normal business, and we find it efficient to do so. We don't have a plan for a larger restructuring that would -- which would be linked to a change in our strategy. It's not the case. We are not changing our strategy. And so we don't have, I would say, this project.

On the question on our capital. We are comfortable with our target of 11% core Tier 1 ratio at the end of 2020. I think we have been proving that we are very disciplined when it comes to excess of capital. And so we reiterate these statements.

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Operator [26]

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Next question is from Mr. Jon Pierce from Crédit Suisse.

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Jonathan Richard Kuczynski Pierce, Crédit Suisse AG, Research Division - Former Head of Banks Equity Research [27]

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My first question is on the flows in July. You mentioned positive flows at H2O. But does that also apply across the rest of the business?

And my second question is on performance fees. Would you be able to give us the split or the contribution of AEW? Just as we think to the second half, with so much of H2O's performance fees having crystallized in Q2, what sort of run rate is reasonable for the second half?

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François Riahi, Natixis S.A. - CEO [28]

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On your first question, we -- again, we don't give elements on the flows. We do it really exceptionally on H2O, given the circumstances and the media attention that is paid to this specific affiliate, but we are not going to do it on a general basis. When we come to performance fees, I think first, performance fees at AWR are very significant this quarter. The majority of the performance fees are coming from H2O and part of it is linked to the outflows and the crystallization of performance fees. So these performance fees would have been probably been accounted for in the Q4 of this year. So part of the performance which is in anticipation of revenues. While at the same time, of course, it's also derisking of these performance fees because we could never know exactly how the performance is going to evolve. That's why these performance fees are not something that we use to base our budget. We have a planning of performance fees, where we consider that. In average, it should be about around 6% or 7% of our revenues. It has been far more last year. It is more also this quarter. But we don't consider that you can project this level of percentage of performance fees moving forward. We don't count on having this level of performance fees at H2O always. But again, that's something is difficult to predict exactly the amount of performance fees we will record in the second part of the year.

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Operator [29]

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Next question from Mr. Omar Fall from Barclays.

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Omar Fall, Barclays Bank PLC, Research Division - Analyst [30]

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So just 3 questions, if I may. So firstly, the -- there's been record inflows into U.S. bond funds with policy rates collapsing. So it makes sense that Loomis is doing well. But can you remind us of the gross margin differential between Loomis and the rest of the U.S. business? Because, I guess looking at the 2 key franchises, Loomis and Harris, one imagines that the prospects for those and the second one maybe not as good.

And then secondly, sorry to come back, but I didn't really hear the answer to Jean-François' question on Global Finance. I don't understand why in the last few periods there's so little correlation between origination volumes -- which last quarter, you told us were extremely strong -- and revenues, it doesn't feel like Q2 would be so bad that you'd have to delay that many deals. So could you give us a bit more color there?

And then lastly, just an update on insurance. So you've had a bit more time following the consolidation of the P&C business at Banques Populaires , the new business. So could you give us more of a sense of the revenue accretion? I think initially you said a couple of percent of growth in 2020, I think, and more beyond. So how much is that more beyond, if you have a better sense for that now?

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François Riahi, Natixis S.A. - CEO [31]

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Thank you also. On your first question, first, I think it's important to remind that Loomis has 2 legs. Of course, Loomis is a very powerful fixed income house, but as a equity business in Loomis is also very strong. So it's fair to say that margins on fixed income are lower than Harris ones, but it's not the case for their equity business. And so I think it's more complicated than just Loomis and Harris differentiating in margin.

On your second question, first, I dispute what you say on the fact that our global finance quarter is bad. It's not bad at all. It's slower than last year, but last year was above our run rate, given some very large transactions and conjunction of large transactions that we did not expect to be the case on the following quarters and on this quarter, in particular. Our Global Finance quarter is good. And we have a very good commercial origination. After that, when you look at the correlation, I think, something which is important is depending on the type of business that is originating, the syndication time is short or long. So if you are very active on LBO deals, the syndication time is short. If you are very active on infrastructure or real estate deal, the syndication time is longer because we are talking about assets that are less liquid. And we need, I would say, more exchanges with suppliers, and the buyers are not other banks, but are real money accounts, which takes more time to distribute. So you have a difference in the syndication time depending on the assets. It's fair to say that currently and recently we are more active on infrastructure and real estate and on LPOs because the market is more down on LPO for obvious reasons. But clearly, the quarter in Global Finance is not bad. It's rather good. And so I don't see a decrease in our origination. On the opposite, I think we have a very good commercial momentum even if the market is more challenging on syndicated loans and is going down. But in this market, I think we are doing quite well.

Maybe I give the floor to Nathalie for your third question.

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Nathalie Bricker, Natixis S.A. - CFO [32]

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Concerning insurance, for the moment, we are running in line and slightly above the target on revenue growth so far. And we have announced also new developments with Covéa -- and so it will give rise to additional growth. On our existing business, what you can see is that we have a solid asset under management growth in that area and also on life side, and equipment rate is improving steadily quarter-on-quarter. And what we can say also is that on the property and casualty side, we have premiums in the Banque Populaire network, which are roughly half -- accounting for half of the premiums in the Caisses d'Epargne networks. And so it should increase in the long term, accordingly. So we have still room in order to improve on that side, and we are confident that we can grow on that.

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Omar Fall, Barclays Bank PLC, Research Division - Analyst [33]

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Great. And so just to clarify on that second question, the EUR 333 million for you, that is a normal -- that is a normal quarter in terms of revenues for Global Finance?

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François Riahi, Natixis S.A. - CEO [34]

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It's a reasonable quarter for Global Finance. We can have more, sometimes we can have larger transactions. That could improve, but it's a reasonable quarter.

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Operator [35]

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We have one last question from Mr. Pierre Chedeville from CM-CIC.

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Pierre Chedeville, CM-CIC Market Solutions, Research Division - Analyst [36]

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Quick question. First question regarding recent Fed monetary policy change and also the upcoming presidential campaign. I would like to know if you have any comments from your asset managers in U.S. and how do we see the situation over the next coming quarters? Are you worrying about the situation? And don't you think that we may have, after a good quarter in net inflows, come back to risk aversion in your franchisees there?

My second question relates to your very good performance regarding unit-linked net inflows and I also wanted to know what is your perception regarding the risk aversion of retail customers in Banque Populaire and Caisses d'Epargne because we're little bit surprised by your performance, but also I recalled good inflows in Unit Link. And I was a little bit surprised by this performance following the Q4 2018, which was, I would say, a little bit disturbing from retail consumers, in my view.

Third question, I'm also very impressed by your combined ratio in the P&C franchise. You are about 2 points below AXA, which has a reputation in France as one of the best testing curve. I'm not anticipating to hear price war. And I wanted to know if there is any net CAT component in your P&C combined ratio.

And my last question regards Xpollens. Could you elaborate a bit more about what is this new service because the explanation on the slide is not very, I would say, explicit for me. I want it specifically.

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François Riahi, Natixis S.A. - CEO [37]

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Thank you. On your first question, I won't be bold enough to try to answer it. We see that even tweets can have a strong impact on the volatility of the markets. So I think it's -- of course, it's an important question, but we don't have an answer to give on the impact of the Fed monetary policy and upcoming Presidential campaign in the U.S.

On your second question, thank you for being impressed by our performance in Insurance. I think on unit-linked products, clearly, as you mentioned, of course, we see a decrease -- an increase of the risk aversion in retail customers in the Banque Populaire and Caisses d'Epargne and actually, our rate of unit-linked products on the new flows is decreasing. The market is decreasing. We are decreasing, too. We maintain an advantage compared to the market. And the -- but it's decreasing. And that's the trend of the market. And we experienced it also. And we are not at our target on unit-linked products, and we are not at our target because of what you mentioned about the fact that the market is moving into more risk aversion of retail customers. Maybe I'll leave it to Nathalie on the combined ratio.

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Nathalie Bricker, Natixis S.A. - CFO [38]

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Yes. So on the P&C combined ratio, so what we can say is that we had a lower share of auto loans in our product mix. So it certainly partly explained the situation. And also, I think that there was a question related to the gap component. So it's well included in the combined ratio we are issuing. And what we can say also on that side is that, perhaps, we have less unfavorable events on this first semester, leading to that level of combined ratio by the end of June.

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Pierre Chedeville, CM-CIC Market Solutions, Research Division - Analyst [39]

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But you don't give your CAT net component in your combined ratio?

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Nathalie Bricker, Natixis S.A. - CFO [40]

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Sorry. I do -- I had at the beginning of the question. In fact, it's well included in the combined ratio.

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Pierre Chedeville, CM-CIC Market Solutions, Research Division - Analyst [41]

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Yes. But for instance, for AXA, it's 2.7% out of 92 , if you know what I mean?

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Nathalie Bricker, Natixis S.A. - CFO [42]

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Yes, but we are not giving the figure related to that.

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François Riahi, Natixis S.A. - CEO [43]

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Okay. About your question on Xpollens -- it's a very interesting initiative that we have been launching. So in our payment business, we have 3 business units: Payment processing and services, which is, of course, I would say, our historical business, serving Caisses d'Epargne and Banque Populaire and other financial institutions on the processing side. The second business unit is Merchant Solutions, which is acquiring and especially with Dalenys and PayPlug. So it's a -- I would say, both at the service of our retail networks, but also serving directly merchants to provide them with solutions. Part of these merchants are -- can be our clients, our corporate clients. In this press release, we've mentioned about the SFS where we have been working with them and providing them a solution on this space. And we have a third business unit, which is prepaid and issuing solutions. So it's not about acquisition, it’s about insurance. And in these business unit, Xpollens is a common initiative with Visa to offer to corporate and fintechs, white labeling of payment services, which allows them to provide to their clients banking solutions without having to move to the banking license. So it's a very interesting field. It's a very promising field. And this partnership with Visa, I think it's a great step to be a strong player in this field. So I think for -- if you take, for example, for fintech, it makes a lot of sense because it's very costly to move to the banking license, you need operations, you need to -- you have the cost of regulation. And with the new regulatory framework in Europe, you can have a lighter setup of being a payment company. And with the type of services we provide, then you can also, for example, distribute cards to your clients that will be processed by Visa in [our sense]. So it's a white-label offer of payment services. That's why it's called Payments in a Box for corporate or for fintech. Again, I think it's a very promising -- it's a very promising field for our payment, the business. It's also, in a way, the type of business we are going to extend, thanks to the development of BPCE Group with ONI. ONI will be, of course, distributing some services that will be done by our payments business.

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Operator [44]

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(Operator Instructions)

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François Riahi, Natixis S.A. - CEO [45]

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It seems there are no more questions. Thank you very much for attending this call. I wish all of you and especially the French people that usually go to vacation in August, good early days. Have some good rest. And our next call will be November 7. And so have a great summer break, and looking forward to talking to you again after this. Thank you very much.