Natixis In Talks to Break With H2O After Year of Scandal

Natixis SA is in talks to end its partnership with money manager H2O Asset Management as Chief Executive Officer Nicolas Namias seeks to draw a line under more than a year of controversy.

The firm and the asset manager are in talks on a “progressive and orderly unwinding of their partnership,” according to a statement from Natixis on Thursday. Discussions include the potential sale of Natixis’s stake in H2O or the fund taking over its own distribution during a transition period until the end of 2021. H2O “will no longer be considered a strategic asset,” the company said.

Natixis fell as much as 6.8% in Paris trading and was down 5.2% as of 9:02 a.m. The stock has fallen about 47% this year, giving the company a market value of 6.6 billion euros ($7.8 billion).

Natixis has endured almost 18 months of negative publicity tied to the London-based asset manager and its relationship with controversial German financier Lars Windhorst. Investors panicked last year when Morningstar flagged concerns about thinly-traded securities tied to Windhorst in H2O’s funds, leading them to pull 8 billion euros.

Natixis In Talks to Break With H2O After Year of Scandal

The scandal recently came back to haunt H2O when the French regulator pressured it to freeze a series of funds containing the securities, which it’s in the process of selling back to Windhorst. The funds were reopened last month and investors pulled more than 400 million euros within days.

Natixis is seeking to cut ties with H20 while still grappling with a string of poor earnings results and mishaps that cost former CEO Francois Riahi his job. While French peers BNP Paribas SA and Societe Generale SA both posted better-than-expected results for the third quarter, Natixis’s net income of 39 million euros fell far short of analyst estimates of 136 million euros. Net revenue of 1.76 billion euros was also slightly below expectations, as was equities and fixed income trading revenue.

The process of unwinding the partnership with H2O could last more than a year and there’s no plan to involve a third party, Naimas said on a conference call on Thursday. Natixis has decided to stop selling the equity derivatives that bear the most risk for the bank with immediate effect, he said.

Key figures from third-quarter earnings:

  • Fixed income rev. EU216m vs EU236m estimate
  • Equities trading rev. EU34m vs EU60.2m estimate
  • Provisions of EU210m vs EU208.8m estimate
  • Seeks to resume dividends in 1H 2021

Natixis and rival SocGen were both hurt earlier this year by losses caused when companies canceled dividends which hit structured products. Natixis reported a 143 million-euro hit in the second quarter, following a similar loss in the first three months. SocGen took a 200 million-euro hit, prompting a review of the business and decision to stop producing the structured products in favor of alternatives less sensitive to market dislocations.

Natixis is also now planning to exit more complicated equity derivative products. The bank expects to serve 50 clients in future instead of more than 400 and expects annual revenue of about 300 million euros and lower costs because of the change. Overall, the bank sees 350 million euros of cost savings by 2023.

H2O had been among Natixis’s most successful holdings, with more than 20 billion euros under management. Many of the firm’s funds had scored stellar returns, with some returning over 40%. The firm struggled when the pandemic roiled markets in early 2020, with the sell-off hitting some of its funds hard, leading to losses of more than 30% in a single day.

Namias is seeking to usher in a period of calm after the abrupt ouster of predecessor Riahi in August. The former CEO left after Natixis was hit for a second straight quarter by losses at its equities unit. The bank is now seeking to focus more on strategic clients and the retail network of parent company BPCE.

©2020 Bloomberg L.P.

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