Ex-CEO’s Taste for Risk Proved His Undoing at French Bank Natixis

Francois Riahi never quite managed to put out the fires in an abbreviated two-year tenure as Natixis SA chief executive officer.

Just six months into his stint, a trading meltdown in Asia landed the French lender with a $300 million loss. High-risk trades helped to end his career atop the French lender on Monday, when he was ousted following deepening losses from equity derivatives.

Natixis directors named Nicolas Namias, 44, as his replacement after citing “strategic differences” with Riahi over the bank’s future. The appointment hints chairman Laurent Mignon is seeking greater control by installing as CEO an executive who had worked closely with him at parent company Groupe BPCE and disagreements with Riahi over strategy.

The shares jumped as much as 12% in early trading in the French capital and were up 6.3% as of 11:28 a.m. local time.

Riahi’s abrupt departure ends a tenure marred by missteps that attracted regulatory scrutiny and caused the shares to lose two-thirds of their value. He’d helped rebuild Natixis in the wake of the financial crisis by pursuing risky derivatives deals, asset management and pushing into lucrative Asian and U.S. markets.

Read more: Natixis’ CEO Exit Proves How Elusive Credible Strategy Is

His ouster may now signal further steps to reduce risk after the losses, according to Jefferies LLC, which upgraded its rating on the bank to buy.

“We expect the new CEO to tackle the profitability and risk profile issues” at the investment-banking division, Jefferies analyst Flora Bocahut wrote in a note to clients. “We cannot rule out further changes, including to group structure, with the CEO change. This could offer further optionality and upside risk to Natixis shares.”

Ex-CEO’s Taste for Risk Proved His Undoing at French Bank Natixis

Daniel Wilson, a spokesman for Natixis in Paris, declined to comment further. Riahi didn’t respond to phone calls and texts seeking comment. The bank declined to make Namias available for interview.

The management change came on the same day the firm reported a 174 million-euro ($204 million) loss in equities trading for the second quarter, deepening a slump that started in the first three months when its derivatives trades were hit by dividend cancellations.

Adding to the pain, debt trading -- a highlight for most peers last quarter -- declined 8%. That left the bank with its second straight quarterly loss at a time when Wall Street firms reported record results in their trading and deal-making businesses.

Some analysts questioned the move. The prospect of a costly restructuring and lack of clarity over the bank’s future strategy is likely to drag down shares, Barclays Plc analyst Omar Fall wrote. Others wondered about the “strategic differences.”

“The CEO’s resignation is surprising news, which is likely to be a key focus of the market, including the reasons for his departure,” Citigroup Inc. analysts led by Azzurra Guelfi wrote.

Riahi, a former top civil servant and adviser to ex-President Nicolas Sarkozy, began at Natixis’s parent after the financial crisis. In 2012, he was named head of Asian corporate and investment banking at Natixis and then became global co-head of that business in 2016.

Natixis increasingly focused on complex, structured trades, which can be harder to manage but often yield higher returns. Their deals ranged from collateralized loan obligations in the U.S. to esoteric derivatives sold to Asian retail investors.

Ex-CEO’s Taste for Risk Proved His Undoing at French Bank Natixis

After also working at Groupe BPCE, Riahi returned to become CEO of Natixis in mid-2018. His problems began almost immediately.

Before the year was over, the bank had lost about $300 million when a batch of Korean derivatives trades went awry. Executives had received internal warnings that they were taking on too much risk with the products -- known as autocallables -- but continued to push ahead with the deals, Bloomberg reported. The losses were later examined by the European Central Bank.

Months later, one of Natixis’s investment boutiques, H2O Asset Management, came under fire for its links to controversial German financier Lars Windhorst. Clients pulled billion of euros and regulators are still looking into the trades.

As he raced to put out the fires, Riahi last year hired a new chief risk officer from JPMorgan Chase & Co. to replace Pierre Debray, who had faced internal scrutiny over a personal stock sale. Around the same time, the bank suspended a senior trader in New York amid a probe into how he managed his positions.

Ex-CEO’s Taste for Risk Proved His Undoing at French Bank Natixis

The woes didn’t end there. When the pandemic roiled global markets, the equity derivatives business once again delivered problems instead of profits. Traders at the bank and peers such as Societe Generale SA and BNP Paribas SA typically use derivatives linked to dividends as part of their efforts to hedge against possible losses. Yet this strategy was upended when corporations began canceling payments to shareholders.

Natixis reported a 143 million-euro hit from dividend cancellations in the second quarter. Net revenue for the group slumped by about a quarter, and the firm posted a 57 million-euro net loss, after a 204 million-euro loss at the start of the year.

SocGen, too, was hit hard, with an 80% slump in equities trading, including a 200 million-euro hit from canceled dividends, that led to its biggest loss since the onset of the financial crisis and a management shakeup. Two deputies to Chief Executive Officer Frederic Oudea are stepping down.

BNP Paribas rebounded with a Wall Street-beating performance in fixed-income trading, which jumped 154% in the second quarter from a year earlier. BNP said there was only a “residual impact” from the dividend cancellations in the second quarter.

©2020 Bloomberg L.P.

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