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Natixis: 4Q19 and 2019 results

Natixis: 4Q19 and 2019 results

Paris, February 6, 2020

4Q19 & 2019 results
Delivering growth across the board, increased dividend with reinforced solvency
Increase in reported net income at €371m in 4Q19 and €1,897m in 2019 vs. €181m in 4Q18 and €1,306m in 2018
Cash dividend per share of 0.31€1, up +3% vs. 2018
Operating trends improving throughout the year with a strong 4Q19



BUSINESSES WELL DIVERSIFIED AND ALL GROWING IN 4Q19 AND 2019

UNDERLYING NET REVENUES2 AT €2.5BN IN 4Q19 (+11%3 YOY) AND €9.2BN IN 2019 (+6% YOY)

AWM: 2019 net revenues at an all-time high, back to positive net inflows in 4Q19 and fee rate resilience

Strength of our active asset management model with underlying net revenues2 up +8% YoY in 4Q19 (+7% YoY in 2019), partly driven by high levels of performance fees that reached €265m in 4Q19 (€627m in 2019), coming from multiple affiliates. Revenue growth higher than cost growth both in 4Q19 and 2019 to reach a historically high level in 2019 (including and excluding performance fees)

Positive net inflows on LT products in 4Q19 (~€3bn) both in Europe and North America. Strong AuM growth, up +16% over the year at €934bn

Average fee rate in line with New Dimension target at ~30bps in 4Q19 and 2019

Underlying RoE2 at ~15% in 2019, close to the 2020 New Dimension target

CIB: Positive jaws effect both in 4Q19 and 2019 with activity levels picking up towards year-end

Underlying net revenues2 up +16%3 YoY in 4Q19 primarily driven by Global markets (+40%3 YoY) and with a historically high quarter for Investment banking/M&A. Success of the diversification strategy illustrated by net revenues up +4% in 2019 vs. 2018

Costs under control, down -1% YoY at constant exchange rate in 2019 despite revenue growth

Underlying RoE2 at ~9% in 2019 with a cost of risk above its through-the-cycle average

Insurance: Continued growth and profitability

Underlying net revenues2 up +7% YoY with a positive jaws effect both in 4Q19 and 2019

Underlying RoE2 ~30% in 2019, close to the target set for New Dimension by 2020

Life insurance4: AuM up +14% over 2019 including a +23% growth across unit-linked products

P&C insurance: combined ratio at 91.7% in 2019, better than 2020 guidance of < 94%

Payments: Continued growth with positive jaws, EBITDA5 up +13% YoY in 2019

Underlying net revenues2 up +9% YoY in 2019 with a positive jaws effect

Underlying RoE2 ~10% in 2019

Increase in business volumes from Dalenys & PayPlug, up around +25% vs. 2018

SUSTAINABLE VALUE CREATION AND FINANCIAL STRENGTH
ORDINARY DIVIDEND INCREASE WITH A PAY-OUT RATIO >80%1

Organic capital creation of ~120bps in 2019, of which ~24bps in 4Q19 (~28bps excluding exceptional items)

Basel 3 FL CET1 ratio6 at 11.3% as at December 31, 2019 (+50bps over the year), above our 2020 target of 11.2% and with a cash dividend per share1 of 0.31€ (83% pay-out ratio), up vs. 0.30€ in 2018 and after a 0.48€ special dividend paid in June 2019

Underlying net income2 at €415m in 4Q19 (x2.2 YoY) and €1,370m in 2019 (+3% YoY)

Underlying RoTE2 at 10.8% in 4Q19 and 10.0% in 2019

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] Proposal of a 0.31€ ordinary dividend per share submitted to the approval of the Annual General Meeting on May 20, 2020 2 Excluding exceptional items. Excluding exceptional items and excluding IFRIC 21 for cost/income, RoE and RoTE in 4Q19 (see note on methodology) 3 Excluding the €(259)m non-recurring revenue impact from Asian equity derivatives in 4Q18 4 Excluding reinsurance agreement with CNP 5 Standalone view excluding exceptional items, analytical items and structure charges - see page 19 6 See note on methodology

In 2019, Natixis recorded very sound results with each of our four businesses growing revenues faster than costs. The fourth quarter of 2019 notably represented Natixis' best-ever quarter in terms of revenue and gross operating income generated. This momentum of successive quarter-on-quarter growth is the result of our unwavering implementation of our asset-light strategy and represents a solid base for us to complete our 2018-2020 strategic plan. 2019 was marked by key strategic milestones: the project to create a leader in the management of life insurance assets with LBPAM, the implementation of the Green Weighting Factor as well as projects being carried out to allow Natixis to reach its 2020 ambition of serving all the customers of Banques Populaires and Caisses d'Epargne on both Life and Non-life insurance. Together with a bolstered robustness and solidity, Natixis will pay a higher ordinary dividend per share of €0.31 to its shareholders, reflecting the strength of its business model.”

François Riahi, Natixis Chief Executive Officer

4Q19 RESULTS

On February 6th, 2020, the Board of Directors examined and approved Natixis’ fourth quarter 2019 results.

€m   4Q19
reported
4Q18
restated
  4Q19
o/w underlying
4Q18
o/w underlying
  4Q19 vs. 4Q18
restated
  4Q19 vs. 4Q18 underlying
Net revenues   2,503 2,040   2,534 2,024   23%   25%
o/w businesses   2,335 1,856   2,335 1,856   26%   26%
Expenses   (1,745) (1,656)   (1,708) (1,626)   5%   5%
Gross operating income   758 383   826 398   98%   108%
Provision for credit losses   (119) (23)   (119) (23)        
Net operating income   639 361   707 375   77%   89%
Associates and other items   9 58   9 58        
Pre-tax profit   648 418   715 432   55%   65%
Income tax   (163) (110)   (185) (115)        
Minority interests   (113) (127)   (116) (128)        
Net income - group share   371 181   415 189   105%   119%

Natixis’ underlying net revenues are up +26% YoY across the businesses with CIB up +74% YoY, AWM up +8% YoY, Insurance up +7% YoY and Payments up +6% YoY. Adjusting net revenues for the 4Q18 non-recurring impact on Asian equity derivatives, top-line growth across Natixis’ businesses reached +10% YoY (o/w +16% in CIB).

Underlying expenses are up +4% YoY at constant exchange rate with a positive jaws effect and a cost/income ratio improvement across all business lines. Expense base reflecting a historically high quarter for net revenues (impact on variable costs) as well as sustained investments in functions to support business growth. The underlying cost/income ratio1 is at 69.5%, down -13.5pp vs. 4Q18.

The underlying gross operating income more than doubled YoY (+26% YoY adjusting net revenues for the 4Q18 non-recurring impact on Asian equity derivatives) to reach a historically high level and absorb an increase in loan loss provisioning compared with a low 4Q18. Cost of risk above through-the-cycle guidance of ~30bps (equivalent to ~€190m for 2020) mainly due to provisioning efforts being made across natural gas producers in the U.S. due to the structural transformation of this sector. Expressed in basis points of loans outstanding (excluding credit institutions), the businesses’ underlying cost of risk worked out to 69bps in 4Q19.

Net income (group share), adjusted for IFRIC 21 and excluding exceptional items reached €368m in 4Q19. Accounting for exceptional items (€(44)m net of tax in 4Q19), and IFRIC 21 impact (+€47m in 4Q19) the reported net income (group share) in 4Q19 is at €371m.

Businesses’ underlying RoE1 reached 13.5% in 4Q19.

Natixis’ underlying RoTE1 reached 10.8% in 4Q19 excl. IFRIC 21 and 12.2% on a normalized cost of risk2.

1 See note on methodology. Excluding exceptional items and excluding IFRIC 21 2 Normalizing the 4Q19 cost of risk at 30bps

2019 RESULTS1

€m   2019
restated
2018
restated
  2019
o/w underlying
2018
o/w underlying
  2019 vs. 2018
restated
  2019 vs. 2018 underlying
Net revenues   9,196 8,749   9,177 8,632   5%   6%
o/w businesses   8,365 7,958   8,365 7,889   5%   6%
Expenses   (6,632) (6,357)   (6,545) (6,272)   4%   4%
Gross operating income   2,564 2,391   2,633 2,360   7%   12%
Provision for credit losses   (332) (193)   (332) (122)        
Net operating income   2,232 2,199   2,301 2,238   2%   3%
Associates and other items   713 83   30 83        
Pre-tax profit   2,945 2,281   2,331 2,321   29%   0%
Income tax   (669) (673)   (612) (687)        
Minority interests   (380) (303)   (349) (304)        
Net income - group share   1,897 1,306   1,370 1,330   45%   3%

Natixis’ underlying net revenues are increasing across all business lines with Payments up +9% YoY, AWM and Insurance up +7% YoY and CIB up +4% YoY. 2019 revenue evolution reflecting an improved momentum throughout the year with 52% of Natixis’ top-line generated during the second semester vs. an average 49% over the last 5 years.

Underlying expenses are well under control and up +2% YoY at constant exchange rate with a positive jaws effect and a cost/income ratio improvement across all business lines. Cost control mainly reflected through CIB expenses, down -1% YoY at constant exchange rate despite revenue growth. The underlying cost/income ratio2 is at 71.3%, down -140bps vs. 2018

The underlying loan loss provisioning increased from a low 2018 on the back of a large single file in 2Q19 and a number of files being provisioned for, mainly in the Energy & Natural Resources space in 2H19. Net revenues adjusted for the cost of risk up +4% YoY in 2019. Net revenues adjusted for the cost of risk up +4% YoY in 2019. Expressed in basis points of loans outstanding (excluding credit institutions), the businesses’ underlying cost of risk worked out to 50bps in 2019 (33bps since the launch of New Dimension).

Net income (group share) excluding exceptional items reached €1,370m in 2019. Accounting for exceptional items (+€527m net of tax in 2019), the reported net income (group share) in 2019 is at €1,897m.

Businesses’ underlying RoE2 reached 12.5% in 2019.

Natixis’ underlying RoTE2 reached 10.0% in 2019 (10.4% adjusted for the disposal of the retail banking activities to BPCE S.A.). Such a level of profitability has been reached in an uncertain geopolitical and economic context that has proved to be volatile over the year, being reminded that the performance of Natixis’ businesses will remain, among other things, sensitive to the evolution of this context over 2020.

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

4Q19 & 2019 RESULTS
Exceptional items

€m   4Q19 4Q18   2019 2018
Exchange rate fluctuations on DSN in currencies (Net revenues) Corporate center (31) 16   19 48
SWL provision reversal (Net revenues) CIB 0 0   (0) 68
Transformation & Business Efficiency Investment costs (Expenses) Business lines &
Corporate center
(31) (27)   (79) (82)
Fit to Win investments & restructuring expenses (Expenses) Financial investments (6) (3)   (8) (3)
Legal provision (Provision for credit losses) CIB 0 0   0 (71)
Disposal of subsidiary in Brazil (Gain or loss on other assets) CIB 0 0   (15) 0
Capital gain - Disposal retail banking activities (Gain/loss on other assets) Corporate center 0 0   697 0
Total impact on income tax   22 5   (57) 14
Total impact on minority interests   2 1   (30) 1
Total impact on net income (gs)   (44) (8)   527 (25)

€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

€m 4Q19 4Q18   2019 2018
AWM (2) (9)   (9) (21)
CIB (12) (6)   (27) (14)
Insurance (3) (2)   (6) (2)
Payments (2) (0)   (5) (0)
Financial Investments 0 0   0 0
Corporate center (12) (11)   (33) (45)
Impact on expenses (31) (27)   (79) (82)


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

Asset & Wealth Management

€m   4Q19 4Q18 4Q19
vs. 4Q18
  2019 2018 2019
vs. 2018
2019
vs. 2018
constant FX
Net revenues   1,109 1,032 8%   3,760 3,513 7% 4%
 o/w Asset Management1   1,061 998 6%   3,611 3,369 7% 4%
 o/w Wealth management   48 34 42%   149 144 3% 3%
Expenses   (679) (634) 7%   (2,483) (2,322) 7% 4%
Gross operating income   430 398 8%   1,277 1,191 7% 5%
Provision for credit losses   2 0     (8) (2)    
Associates and other items   2 43     5 39    
Pre-tax profit   434 441 (2)%   1,274 1,228 4%  
Cost/income ratio2   61.3% 61.6% -0.3pp   66.0% 66.1% -0.1pp  
RoE after tax2   19.1% 20.1% -1.0pp   14.9% 16.0% -1.1pp  

Underlying net revenues from Asset & Wealth Management (AWM) are up +8% YoY in 4Q19 both including and excluding AM performance fees, illustrating the strength of our diversified multi-boutique model which delivered a +7% YoY revenue growth in 2019 to reach a historically high level (even excluding performance fees). Asset management (excl. Employee savings plan) underlying net revenues, including performance fees, are up +4% YoY in North America (€415m) and up +6% YoY in Europe (€459m) in 4Q19 (+2% at €1,647m and +10% at €1,297m in 2019 for North America and Europe respectively). Wealth management net revenues are significantly up YoY in 4Q19 (~€6m of performance fees).

The Asset management overall fee rate excluding performance fees is at ~30bps both in 4Q19 (slightly up QoQ) and 2019, in line with New Dimension target. For European affiliates, it is at ~16bps in 2019 (~17bps in 4Q19) and ~28bps excl. Life Insurance General Accounts (~30bps in 4Q19). For North American affiliates, it is at ~38bps (~37bps in 4Q19) vs. ~40bps in 2018 mainly due to a lower share of average AuM from Harris following the 4Q18 market effect. Performance fees reached €265m in 4Q19 (€627m in 2019) driven by various strategies (global macro, real assets, ESG, equity growth, fixed income) across multiple affiliates.

Asset management net flows on LT products reached ~€3bn in 4Q19 with an improving trend throughout the quarter. In Europe, ~€0.5bn net inflows in 4Q19 with a positive momentum for global macro and ESG strategies largely offset by a ~€3bn single mandate outflow although low-margin. Good start for Thematics AM (€0.7bn AuM at end-December). In North America, ~€3bn net inflows in 4Q19 across both fixed income and equity strategies.

Asset management AuM reached €934bn as at December 31, 2019, up +1% QoQ and +16% YTD. Positive market effect of +€26bn in 4Q19 (mainly December) essentially impacting North American equity strategies and more than offsetting a weaker USD (~€14bn negative FX & perimeter effect). AuM were also impacted in 4Q19 by ~€2bn net outflows on low-margin money-market products. YE19 AuM above their 2018 and 2019 average level both in North America and Europe. Wealth management AuM reached €30.4bn as at December 31, 2019 with €0.5bn net inflows in 2019.

Underlying expenses tracking revenue growth with a slight positive jaws effect both in 4Q19 and 2019.

The underlying gross operating income is up high single-digit both in 4Q19 (+8%) and 2019 (+7%).

The underlying RoE2 reached ~15% for the year, close to New Dimension 2020 target with net income flat vs. 2018 (higher minority interests) and more capital allocated to the business.

1 Asset management including Private equity and Employee savings plan
2 See note on methodology. Excluding exceptional items and excluding IFRIC 21 in 4Q


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

Corporate & Investment Banking

€m   4Q19 4Q18 4Q19
vs. 4Q18
  2019 2018 2019
vs. 2018
2019
vs. 2018
constant FX
Net revenues   899 518 74%   3,337 3,197 4% 2%
Net revenues excl. CVA/DVA/Other   901 500 80%   3,338 3,140 6% 4%
Expenses   (590) (553) 7%   (2,208) (2,188) 1% (1)%
Gross operating income   309 (35) NR    1,129 1,009 12% 8%
Provision for credit losses   (118) (9)     (312) (103)    
Associates and other items   2 3     10 14    
Pre-tax profit   193 (41) NR    827 921 (10)%  
Cost/income ratio1   66.5% 108.3% NR   66.2% 68.4% -2.2pp  
RoE after tax1   8.0% NR NR   8.9% 10.2% -1.3pp  

Underlying net revenues are up +16% YoY in 4Q19 adjusting for the 4Q18 €(259)m non-recurring impact on Asian equity derivatives. The growth is primarily driven by Global markets (+40% YoY) and Investment banking/M&A (+14% YoY). Global finance revenues are up +2% YoY in 4Q19 on a strong 4Q18. Underlying net revenue growth for 2019 reached +4% YoY.

Underlying net revenues/RWA2 improving at above 5.8% in 4Q19.

Global markets net revenues are up +40% YoY in 4Q19 adjusting for the 4Q18 €(259)m non-recurring impact on Asian equity derivatives with strong performance from the EMEA region. Underlying net revenues excluding CVA/DVA featured strong resilience over 2019, down a modest -3% YoY adjusted3 despite a challenging 1Q19. FICT net revenues are up +33% YoY in 4Q19 to reach their highest level since 1Q18 and marking the third consecutive quarter of YoY revenue growth amidst improving market conditions following an unfavorable 1Q19. Strong client activity across Rates and Credit. Equity net revenues are multiplied by x2 YoY3 in 4Q19 on a low 4Q18 and largely flat YoY3 in 2019. Benign volatility in 4Q19 leading to low client activity for derivatives. Global finance net revenues are up +2% YoY in 4Q19 and marginally down YoY in 2019 on a historically high basis. 4Q19 revenues growing for syndication across all Real Assets business lines as well as Trade & Treasury Solutions, offsetting a lower contribution from Energy & Natural Resources. Distribution rate on Real Assets at ~60% in 2019. Investment banking and M&A net revenues are up +14% YoY in 4Q19 (+6% YoY in 2019) driven by robust activity across DCM and Acquisition & Strategic Finance.
Strong quarter for M&A boutiques, especially for Fenchurch (#1 UK FIG M&A by deal value and volume, #4 Europe FIG M&A by deal value)4 and PJ Solomon. Azure Capital the most active M&A adviser in Western Australia (13 announced transactions with a value of $1.3bn)5. M&A revenues up +3% YoY at ~€200m with Natixis ranking #5 in France by deal volume4. Proportion of revenues generated from service fees at ~43% in 4Q19 and >40% in 20196.

Underlying expenses are well under control, down -1% YoY at constant exchange rate in 2019 despite a net revenue increase. The 4Q19 +5% YoY expense growth (at constant FX) reflects higher variable staff costs vs. 4Q18 given the +70% revenue expansion (at constant FX).

Underlying cost of risk is up YoY in 4Q19 vs. a very low 4Q18 due to provisioning efforts mainly made across the U.S. natural gas space.

Underlying RoE1 of 8.0% in 4Q19 and 8.9% in 2019. Normalizing for the cost of risk7, the 4Q19 RoE would have reached 10.8% and the 2019 RoE 10.2%.

RWA are slightly down QoQ and up +2% over 2019.

1 See note on methodology. Excluding exceptional items and excluding IFRIC 21 in 4Q 2 4Q19 annualized net revenues (excl. CVA/DVA desk) on average RWA 3 Adjusting net revenues for the 4Q18 €(259)m non-recurring impact on Asian equity derivatives 4 Source: Mergermarket 5 Source: Business News Western Australia 6 ENR, Real Assets, ASF 7 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

€m   4Q19 4Q18 4Q19
vs. 4Q18
  2019 2018 2019
vs. 2018
Net revenues   216 201 7%   846 790 7%
Expenses   (123) (116) 5%   (472) (446) 6%
Gross operating income   93 85 10%   374 344 9%
Provision for credit losses   0 0     0 0  
Associates and other items   4 9     10 15  
Pre-tax profit   96 93 3%   384 358 7%
Cost/income ratio1    58.9% 60.3% -1.4pp   55.8% 56.5% -0.7pp
RoE after tax1   26.0% 29.8% -3.8pp   28.4% 29.1% -0.7pp

Banking view

Underlying net revenues are up +7% YoY both in 4Q19 and 2019 with growth across the board.

Underlying expenses are up +5% YoY in 4Q19 and +6% YoY in 2019, translating into a positive jaws effect and a cost/income ratio improvement, alongside with investments being made, especially on digital tools.

Underlying gross operating income is up +10% YoY in 4Q19 and +9% YoY in 2019.

Underlying RoE1 is above 28% in 2019, impacted by a higher capital allocation (positive OCI development contributing to an increase in book value, risk-weighted under the Danish Compromise).

Insurance view

Global turnover2 reached €3.1bn in 4Q19, up +18% YoY (+6% in 2019 at €12.7bn).

Life and Personal protection: €2.7bn earned premiums2 in 4Q19, up +20% YoY (+6% in 2019).

  • Total AuM2 at €68.4bn as at end-December 2019, up +3% QoQ and +14% YTD, driven by €1.4bn of net inflows2 in 4Q19 (€6.0bn in 2019).
     
  • Unit-linked AuM2 at €17.3bn as at end-December 2019, up +5% QoQ and +23% YTD, driven by €0.8bn of net inflows2 in 4Q19 (59% of total net inflows) and €2.5bn in 2019. UL products accounted for 31% of gross inflows in 2019, above the French market3.
     
  • Decrease of profit-sharing rate by ~50bps vs. 2018 and reinforcement by ~20% of the policyholder reserve (PPE)4

             
P&C: earned premiums above €0.4bn in 4Q19, up +6% YoY (+6% in 2019). The combined ratio reaches 91.7% in 2019
(+0.5pp YoY) and 90.0% in 4Q19 (+1.1pp YoY).

The non-life equipment rate at the end of December is at 26.6% (+1.2pp YoY) for Banques Populaires and at 29.9% (+1.3pp YoY) for Caisses d’Epargne.

1 See note on methodology. Excluding exceptional items and excluding IFRIC 21 in 4Q 2 Excluding reinsurance agreement with CNP
3 Source: FFA 4 BPCE Vie

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

Payments

€m   4Q19 4Q18 4Q19
vs. 4Q18
  2019 2018 2019
vs. 2018
Net revenues   111 105 6%   423 389 9%
Expenses   (93) (90) 4%   (365) (341) 7%
Gross operating income   18 15 19%   57 48 19%
Provision for credit losses   (0) (2)     (2) (2)  
Associates and other items   (0) 0     0 1  
Pre-tax profit   17 13 36%   55 47 18%
Cost/income ratio1   84.1% 85.9% -1.8pp   86.5% 87.6% -1.1pp
RoE after tax1   12.4% 9.9% 2.5pp   10.0% 9.9% 0.1pp

Underlying net revenues up +9% YoY in 2019 and +6% YoY in 4Q19. Payment revenues multiplied by ~1.3x since the launch of New Dimension and with ~40% of 2019 revenues realized with direct clients (+1pp vs. 2018).

  • Payment Processing & Services: Steady +6% YoY revenue growth in Natixis Payments’ historical activities in 4Q19 (+5% YoY in 2019). Number of card transactions processed up +8% YoY in 4Q19 (+10% YoY in 2019).
     
  • Merchant Solutions: Solid business volumes generated by Dalenys and PayPlug, up +29% YoY in 4Q19 (+25% YoY in 2019 o/w +83% for PayPlug and +21% for Dalenys). Launch of the card payment in installments solution by PayPlug (with Oney).
     
  • Prepaid & Issuing Solutions: Robust revenue growth in 2019 (+30% YoY) mainly driven by meal voucher (+6% YoY) and Benefits & Rewards (Titres Cadeaux and Comitéo). Number of mobile payments more than x2.5 vs. 2018.

1 See note on methodology. Excluding exceptional items and excluding IFRIC 21 in 4Q
Unless specified otherwise, the following comments and data refer to underlying results, i.e. excluding exceptional items (see detail p5)

Financial Investments

€m   4Q19 4Q18 4Q19
vs. 4Q18
  2019 2018 2019
vs. 2018
Net revenues   188 181 4%   772 742 4%
Coface   177 165 8%   712 678 5%
Other   10 16     60 64  
Expenses   (147) (136) 7%   (552) (524) 6%
Gross operating income   41 44 (7)%   220 218 1%
Provision for credit losses   (1) 3     (10) (1)  
Associates and other items   2 0     7 6  
Pre-tax profit   42 47 (11)%   216 223 (3)%

The net combined ratio of Coface1 reached 80.4% in 4Q19 vs. 81.4% in 4Q18 (77.7% in 2019 vs. 79.6% in 2018) with a cost ratio moving from 35.9% to 35.6% (from 34.5% in 2018 to 32.7% in 2019) and a loss ratio moving from 45.5% to 44.8% (from 45.1% in 2018 to 45.0% in 2019).

Corporate Center

€m   4Q19 4Q18 4Q19
vs. 4Q18
  2019 2018 2019
vs. 2018
Net revenues   11 (12)     40 1  
Expenses   (76) (96) (21)%   (464) (452) 3%
SRF   (0) 0     (170) (160) 6%
Other   (76) (96) (21)%   (294) (292) 1%
Gross operating income   (66) (109) (40)%   (424) (451) (6)%
Provision for credit losses   (0) (15)     1 (14)  
Associates and other items   (0) 3     (2) 8  
Pre-tax profit   (67) (120) (45)%   (425) (456) (7)%

Underlying net revenues of €40m in 2019 (positive FVA impacts mainly in 1Q19) and €11m in 4Q19.

Underlying expenses excluding SRF down -21% YoY in 4Q19 and largely flat YoY in 2019.

P&L drag at pre-tax profit level reduced by ~€30m in 2019 despite SRF contribution increase.

1 Reported ratios, net of reinsurance


FINANCIAL STRUCTURE

Basel 3 fully-loaded1
Natixis’ Basel 3 fully-loaded CET1 ratio worked out to 11.3% as at December 31, 2019.

  • Basel 3 fully-loaded CET1 capital amounted to €11.2bn
  • Basel 3 fully-loaded RWA amounted to €99.0bn

Based on a Basel 3 fully-loaded CET1 ratio of 10.8% as at December 31, 2018, the respective 2019 impacts were as follows:

  • IFRS 16 & deduction for Irrevocable Payment Commitments: -22bps
  • Disposal of retail banking activities: +223bps
  • 2019 results: +137bps
  • 2019 RWA and other effects: -21bps
  • 2019 strategic operations: -21bps
  • Special dividend paid in 2019 following the disposal of the retail banking activities: -153bps
  • 2019 ordinary dividends: -99bps

As at December 31, 2019, Natixis’ Basel 3 fully-loaded capital ratios stood at 13.1% for the Tier 1 and 15.3% for the Total capital.

Basel 3 phased-in excl. current financial year’s earnings and dividends1
As at December 31, 2019, Natixis’ Basel 3 phased-in capital ratios excl. current financial year’s earnings and dividends stood at 10.4% for the CET1, 12.5% for the Tier 1 and 14.8% for the Total capital.

  • Core Tier 1 capital stood at €10.2bn and Tier 1 capital at €12.4bn
  • Natixis’ RWA totaled €99.0bn, breakdown as follows:
    • Credit risk: €66.3bn
    • Counterparty risk: €6.4bn
    • CVA risk: €1.3bn
    • Market risk: €11.2bn
    • Operational risk: €13.7bn

Book value per share
Equity capital (group share) totaled €19.4bn as at December 31, 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 including dividend distribution projected for the fiscal year 2019 stood at €5.17 as at December 31, 2019 based on 3,150,995,283 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 €3.89.

Leverage ratio1

The leverage ratio worked out to 4.1% as at December 31, 2019.

Overall capital adequacy ratio
As at December 31, 2019, the financial conglomerate’s excess capital was estimated at around €3.1bn (based on own funds including current financial year’s earnings and projected dividend distribution).

     1 See note on methodology

APPENDICES

Note on methodology:

The results at 31/12/2019 were examined and approved by the board of directors at their meeting on 06/02/2020.
Figures at 31/12/2019 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

Changes in Natixis’ account presentation following the disposal of the retail banking activities to BPCE S.A.

  • Employee savings plan is reallocated to Asset & Wealth Management
  • Film industry financing is reallocated to Corporate & Investment Banking
  • Insurance is not impacted
  • Payments becomes a standalone business line
  • Financial Investments are isolated and include Coface, Natixis Algeria and the private equity runoff activities. The Corporate Center is refocused on Natixis’ holding and ALM functions and carries the Single Resolution Fund contribution within its expenses

                         

Additional impacts on the quarterly series from the disposal of the retail banking activities to BPCE S.A.

  • New support function services provided by Natixis to the activities sold (TSA / SLA), as well as the cancellation of services or analytical items that have been made obsolete following such a disposal are factored in
  • The reclassification as Net revenues of the residual IT and logistic services that continue to be provided to the activities sold. Such services now being provided to entities that do not fall under Natixis’ scope of consolidation anymore, they have been reclassified as Net revenues instead of expense deductions
  • The implementation of introductory fees between the Natixis CIB Coverage and the entities sold

In order to ensure comparability between the 2018 and 2019 quarterly series, these impacts have been simulated retroactively as of January 1st, 2018, even though they only impact the published financial statements as of their implementation date in 2019. These items essentially impact the Corporate Center and more marginally the CIB. The others business lines are unimpacted

Business line performances using Basel 3 standards:

  • The performances of Natixis business lines are presented using Basel 3 standards. Basel 3 risk-weighted assets are based on CRR-CRD4 rules as published on June 26th, 2013 (including the Danish compromise treatment for qualified entities).
  • Natixis’ RoTE is calculated by taking as the numerator net income (group share) excluding DSN interest expenses (the associated tax benefit being already accounted for in the net income following the adoption of IAS 12 amendment). Equity capital is average shareholders’ equity group share as defined by IFRS, after payout of dividends, excluding average hybrid debt, average intangible assets and average goodwill.

-            Natixis’ RoE: Results used for calculations are net income (group share), deducting DSN interest expenses (the associated tax benefit being already accounted for in the net income following the adoption of IAS 12 amendment). Equity capital is average shareholders’ equity group share as defined by IFRS, after payout of dividends, excluding average hybrid debt, and excluding unrealized or deferred gains and losses recognized in equity (OCI).
-            RoE for business lines is calculated based on normative capital to which are added goodwill and intangible assets for the business line. Normative capital allocation to Natixis’ business lines is carried out based on 10.5% of their average Basel 3 risk-weighted assets. Business lines benefit from remuneration of normative capital allocated to them. By convention, the remuneration rate on normative capital is maintained at 2%.

Note on Natixis’ RoE and RoTE calculation: Calculations based on quarter-end balance sheet in 1Q19 to reflect the disposal of the retail banking activities. The €586m net capital gain is not annualized. 2018 RoTE of 10.4% on page 4 adjusted for the disposal of the retail banking activities i.e. as if the operation took effect on January 01, 2018 (vs. 12.0% as reported) with a numerator of €1,233m: €1,330m underlying net income group share as shown on page 14 minus €97m post-tax DSN interest expenses and a denominator of €11,855m: 2018 average equity for RoTE calculation of €12,565m adjusted for the following impacts related to the perimeter sold (+) €586m net capital gain recorded in 1Q19 (-) €1,512m special dividend paid out in 2Q19 (+) €178m goodwill and intangibles (+) €38m other impacts (OCI). Adoption of IAS 12 amendment effective as of 3Q19 (see next slide for additional comments), with no impact on the RoE/RoTE.

Net book value: calculated by taking shareholders’ equity group share (minus distribution of dividends proposed by the Board of Directors and submitted to the approval of the General Shareholders' Meeting on May 28, 2019), restated for hybrids and capital gains on reclassification of hybrids as equity instruments. Net tangible book value is adjusted for goodwill relating to equity affiliates, restated goodwill and intangible assets as follows:

€m 31/12/2019
Goodwill 3,891
Restatement for Coface minority interests (162)
Restatement for AWM deferred tax liability & others (343)
Restated goodwill 3,386


€m 31/12/2019
Intangible assets 717
Restatement for Coface minority interest & others (48)
Restated intangible assets 669

Own senior debt fair-value adjustment: calculated using a discounted cash-flow model, contract by contract, including parameters such as swap curves and revaluation spread (based on the BPCE reoffer curve). Adoption of IFRS 9 standards, on November 22, 2016, authorizing the early application of provisions relating to own credit risk as of FY2016 closing.

Phased-in capital and ratios excl. current financial year’s earnings and dividends: based on CRR-CRD4 rules as reported on June 26, 2013, including the Danish compromise - phased in. Presentation excluding current financial year’s earnings and dividend declared

Fully-loaded capital and ratios: based on CRR-CRD4 rules as reported on June 26, 2013, including the Danish compromise - without phase-in. Presentation including current financial year’s earnings and dividend declared)

Leverage ratio: based on delegated act rules, without phase-in (presentation including 2019 earnings and declared dividend) and with the hypothesis of a roll-out for non-eligible subordinated notes under Basel 3 by eligible notes. Repo transactions with central counterparties are offset in accordance with IAS 32 rules without maturity or currency criteria. Leverage ratio disclosed including the effect of intragroup cancelation - pending ECB authorization

Exceptional items: figures and comments on this press release are based on Natixis and its businesses’ income statements excluding non-operating and/or exceptional items detailed page 5. Figures and comments that are referred to as ‘underlying’ exclude such exceptional items. Natixis and its businesses’ income statements including these items are available in the appendix of this press release

Restatement for IFRIC 21 impact: the cost/income ratio, the RoE and the RoTE excluding IFRIC 21 impact calculation in 4Q19 takes into account ¼ of the annual duties and levies concerned by this accounting rule

Earnings capacity: net income (group share) restated for exceptional items and the IFRIC 21 impact

Expenses: sum of operating expenses and depreciation, amortization and impairment on property, plant and equipment and intangible assets

IAS 12: As of 3Q19, according to the adoption of IAS 12 (income taxes) amendment, the tax benefit on DSN interest expenses previously recorded in the consolidated reserves is now being accounted for in the income statement (income tax line). Previous periods have not been restated with a positive impact of €47.5m in 2019, of which €35.9m recognized in in 3Q19 (€23.8m related to 1H19).


Natixis - Consolidated P&L (restated)

€m 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19   4Q19
vs. 4Q18
  2018 2019   2019
vs. 2018
Net revenues 2,193 2,360 2,156 2,040 2,132 2,282 2,280 2,503   23%   8,749 9,196   5%
Expenses (1,675) (1,528) (1,499) (1,656) (1,720) (1,577) (1,590) (1,745)   5%   (6,357) (6,632)   4%
Gross operating income 518 832 658 383 412 705 689 758   98%   2,391 2,564   7%
Provision for credit losses (36) (41) (93) (23) (31) (110) (71) (119)       (193) (332)    
Associates 7 3 6 13 3 8 3 6       29 21    
Gain or loss on other assets 6 4 (0) 44 682 (2) 9 3       54 692    
Change in value of goodwill 0 0 0 0 0 0 0 0       0 0    
Pre-tax profit 495 798 570 418 1,066 602 630 648   55%   2,281 2,945   29%
Tax (175) (234) (154) (110) (215) (164) (126) (163)       (673) (669)    
Minority interests (60) (57) (59) (127) (86) (92) (88) (113)       (303) (380)    
Net income (group share) 260 507 358 181 764 346 415 371   105%   1,306 1,897   45%

Figures restated as communicated on April 11, 2019 following the disposal of the retail banking activities. See below for the reconciliation of the restated figures with the accounting view

Natixis - Reconciliation between management and accounting figures

2018

€m 2018
underlying
  Exceptional items   2018
restated
Contribution from perimeter sold   2018
reported
Net revenues 8,632   116   8,749 867   9,616
Expenses (6,272)   (85)   (6,357) (466)   (6,823)
Gross operating income 2,360   31   2,391 401   2,793
Provision for credit losses (122)   (71)   (193) (22)   (215)
Associates 29   0   29 0   29
Gain or loss on other assets 54   0   54 (0)   54
Pre-tax profit 2,321   (40)   2,281 380   2,661
Tax (687)   14   (673) (108)   (780)
Minority interests (304)   1   (303) (1)   (304)
Net income (group share) 1,330   (25)   1,306 271   1,577

2019

€m 2019
underlying
  Exceptional items   2019
restated
Residual contribution from perimeter sold   2019
reported
Net revenues 9,177   19   9,196 22   9,219
Expenses (6,545)   (88)   (6,632) (22)   (6,655)
Gross operating income 2,633   (69)   2,564 (0)   2,564
Provision for credit losses (332)   0   (332) (0)   (332)
Associates 21   0   21 0   21
Gain or loss on other assets 9   683   692 (0)   692
Pre-tax profit 2,331   614   2,945 (0)   2,945
Tax (612)   (57)   (669) 0   (669)
Minority interests (349)   (30)   (380) 0   (380)
Net income (group share) 1,370   527   1,897 (0)   1,897


Natixis - IFRS 9 Balance sheet

Assets (€bn) 31/12/2019 31/12/2018
Cash and balances with central banks 21.0 24.3
Financial assets at fair value through profit and loss1 228.8 214.1
Financial assets at fair value through Equity 12.1 10.8
Loans and receivables1 119.2 96.6
Debt instruments at amortized cost 1.6 1.2
Insurance assets 108.1 100.5
Non-current assets held for sale 0.0 25.6
Accruals and other assets 15.7 16.8
Investments in associates 0.7 0.7
Tangible and intangible assets 2.1 1.1
Goodwill 3.9 3.8
Total 513.2 495.5
Liabilities and equity (€bn) 31/12/2019 31/12/2018
Due to central banks 0.0 0.0
Financial liabilities at fair value through profit and loss1 218.3 208.2
Customer deposits and deposits from financial institutions1 102.4 109.2
Debt securities 47.4 35.0
Liabilities associated with non-current assets held for sale 0.0 9.7
Accruals and other liabilities 18.1 17.0
Insurance liabilities 100.5 89.5
Contingency reserves 1.6 1.7
Subordinated debt 4.0 4.0
Equity attributable to equity holders of the parent 19.4 19.9
Minority interests 1.4 1.3
Total 513.2 495.5

1 Including deposit and margin call

Natixis - 4Q19 P&L by business line

€m AWM CIB Insurance Payments Financial investments Corporate Center   4Q19
reported
Net revenues 1,109 899 216 111 188 (20)   2,503
Expenses (681) (602) (125) (96) (153) (89)   (1,745)
Gross operating income 428 297 90 15 35 (109)   758
Provision for credit losses 2 (118) 0 (0) (1) (0)   (119)
Net operating income 430 179 90 15 34 (109)   639
Associates and other items 2 2 4 (0) 2 (0)   9
Pre-tax profit 432 181 94 15 35 (109)   648
            Tax   (163)
            Minority interests   (113)
            Net income (gs)   371

Asset & Wealth Management

€m 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19   4Q19
vs. 4Q18
  2018 2019   2019
vs. 2018
Net revenues 799 842 841 1,032 773 932 945 1,109   8%   3,513 3,760   7%
Asset Management1 762 805 805 998 742 900 908 1,061   6%   3,369 3,611   7%
Wealth management 37 37 36 34 31 32 37 48   42%   144 149   3%
Expenses (548) (569) (584) (642) (558) (605) (648) (681)   6%   (2,343) (2,492)   6%
Gross operating income 251 273 257 389 216 327 297 428   10%   1,170 1,268   8%
Provision for credit losses (0) (1) (1) 0 1 (2) (8) 2       (2) (8)    
Net operating income 251 272 256 390 216 325 289 430   10%   1,169 1,260   8%
Associates 0 0 0 2 0 0 0 0       3 1    
Other items (0) (3) (2) 41 (2) (2) 8 1       37 5    
Pre-tax profit 251 269 255 433 214 323 297 432   (0)%   1,208 1,266   5%
Cost/Income ratio 68.6% 67.6% 69.4% 62.3% 72.1% 64.9% 68.5% 61.4%       66.7% 66.3%    
Cost/Income ratio excl. IFRIC 21 68.1% 67.7% 69.6% 62.4% 71.6% 65.1% 68.7% 61.5%       66.7% 66.3%    
RWA (Basel 3 - in €bn) 11.7 11.8 12.5 12.3 12.5 13.7 13.4 14.0   14%   12.3 14.0   14%
Normative capital allocation (Basel 3) 4,143 4,065 4,150 4,363 4,364 4,407 4,555 4,581   5%   4,180 4,477   7%
RoE after tax (Basel 3)2 13.7% 15.2% 13.9% 19.6% 11.5% 15.1% 13.3% 19.0%       15.7% 14.8%    
RoE after tax (Basel 3) excl. IFRIC 212 14.0% 15.1% 13.8% 19.5% 11.8% 15.0% null