Morningstar | Natixis' First-Quarter 2019: Risk Appetite on the Wane?
No-moat Natixis reported net profit of EUR 764 million for the first quarter of 2019, however, this includes a gain of EUR 586 million on the disposal of Natixis' retail banking operations to its parent, BPCE. Underlying profit of EUR 192 million is 33% lower than the EUR 288 million Natixis achieved in the first quarter of 2018. We maintain our no-moat rating, and we cut our fair value estimate to EUR 4.60 per share from EUR 5.00 previously to reflect our lower growth estimates.Group revenue declined by 7% year on year. The two largest divisions, asset and wealth management--which contributes 37% of group revenue and corporate and investment banking, which contributes 39% of group revenue--recorded revenue declines of 3% and 15%, respectively, compared with the first quarter of 2018. The smaller divisions, insurance and payments, managed to grow revenue year on year by 7% and 11%, respectively.
The performance from Natixis' investment bank was among the worst of the European investment banks that we cover. While equity trading revenue was under pressure among nearly all European investment banks, the 34% year-on-year decline in fixed income, currencies, and commodities, or FICC, that Natixis recorded for the quarter is an extreme outlier. Most European investment banks saw FICC trading revenue rebound in the first quarter of 2019. Natixis blamed less favourable market conditions for the poor FICC performance; however, most of its peers recorded higher FICC revenue. We can only speculate as to the impact that the substantial losses Natixis recorded in equity derivative trading in the final quarter of 2018 had on its overall trading risk appetite.
Asset and wealth management revenue was under pressure, declining by 3% year on year as performance fees halved compared with the first quarter of 2018. Excluding performance fees, management fees held stable at around 0.3% of assets under management. While the market recovery supported assets under management recovering to EUR 865 billion, Natixis did record net outflows of EUR 1 billion for the first quarter of 2019. Natixis did, however, highlight that the outflows are largely confined to low fee, vanilla strategies like core fixed income while higher fee alternative strategies attracted an inflow of EUR 2 billion.
Natixis is a player in the European banking industry. As the banking partner of large companies in France, Co. also plays an active role in serving financial institutions (banks, insurance companies, pension funds, etc.). Co.'s activities are divided into in three main business lines: Wholesale Banking, Investment Solutions (Asset Management, Private Banking, Insurance, and Private Equity) and Specialized Financial Services. Co. operates in four geographical regions: France; other EU countries; North America (Canada, USA); and other OECD countries. As of Dec. 31 2013 Co.'s total assets totaled Euro510,131,000,000.
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Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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