Natixis Found Guilty of Downplaying 2007 Subprime Risks

Natixis SA was found guilty of misleading investors by downplaying its exposure to subprime risks more than a decade ago, in a ruling that serves as a warning to public companies over what they disclose.

The French lender was fined 7.5 million euros ($9 million) -- the maximum potential amount at the time the contentious subprime statement was made. French laws have since been tightened and companies could face as much as a 100 million euro fine or 10 times the amount of the wrongdoing, according to Frederic Peltier, a lawyer who specializes in market-abuse cases.

The Paris case rested on a single statement, issued in November 2007, in which investigators say Natixis incorrectly specified that its subprime risks were limited. Natixis said it will appeal Thursday’s ruling.

“The court is saying it now has the tools to issue very significant fines,” said Peltier, who isn’t involved in the Natixis case. The Natixis penalty might have been 100 times larger if the statement had been issued after the new rules had kicked in, he said.

Eric Dezeuze, a lawyer for the French bank, said Natixis never committed any wrongdoing and is appealing “because this ruling didn’t take any of its arguments into account.” The lender has previously said it provided information about its exposure in good faith. No current or former Natixis employees were targeted in the trial.

On Thursday, Judge Nicolas Michon said the court considers the misinformation caused an over-valuation of Natixis’s market capitalization by 1.1 billion euros. He said judges had considered confiscating that amount as the product of the infringement but eventually decided against it.

“Natixis didn’t just make a mistake but deliberately misled the market,” Judge Michon said. “The fraud was willingly decided at the highest level at Natixis in order to protect the share price.”

Natixis was also ordered by the Paris court to pay 3 euro a share in damages to groups of investors who say their savings were wiped out due to Natixis losses they were unable to anticipate.

The U.S. subprime crisis cascaded across the global economy, forcing the French bank to carry out a radical restructuring soon after its trading debut in 2006. Natixis cumulative net losses reached about 4.5 billion euros between 2008 and 2009, according to Bloomberg data.

Natixis first sold shares to the public in December 2006 at 19.55 euros apiece, but two years later the stock dropped as low as 1.25 euros.

Parent company BPCE is currently offering 4 euros per share to take the company private.

©2021 Bloomberg L.P.

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