statement
Workout portfolio management (GAPC) net restructuring costs were transferred to net income (group share). This presentation facilitates comparisons between reporting periods and makes it easier to interpret business performances.
NET REVENUES
Natixis’ net revenues (1) amounted to €7,032 million at December 31, 2013, up 6.6% versus December 31, 2012. Revaluation of own senior debt accounted for -€195 million in net revenues for the year (vs. -€352 million in 2012).
Excluding the impact of the revaluation of own senior debt, net revenues climbed 4% over the year to €7,226 million, refl ecting the solid momentum in the core businesses (+5%).
FINANCIAL DATA
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Management report at December 31, 2013 Wholesale Banking’s net revenues picked up by 6.4%, restated for the contribution of discontinued operations and the main non- recurring items (refl ecting the change in model used) despite limited capital and liquidity resources.The fi nancing activities improved their net revenues by 3%, driven by robust business and service fee income growth.
Revenues from market activities were relatively stable compared to 2012, thanks in large part by the performance of the debt and treasury platform as well as equity derivatives fl ows.
Investment Solutions posted a 9% increase in net revenues (+11% at constant exchange rates), predominantly attributable to the momentum in Asset Management driven by development in the United States and the turnaround in insurance income thanks to improved conditions in life insurance.
Specialized Financial Services gained 7% in net revenues, buoyed by strong momentum in Specialized Financing with the Group networks and the scope effect in consumer fi nance associated with the deal to buy out minority shareholders in this business. Financial Services were resilient, with virtually stable net revenues despite the persistently unsupportive securities environment.
OPERATING EXPENSES AND HEADCOUNT
Consolidated expenses (2),including GAPC, totaled €5,153 million, up 2.5% on 2012 at constant USD exchange rates. Recurring expenses (2) (excluding GAPC) stood at €5,064 million, up 2.5% on 2012. At constant USD exchange rates, the 3% increase mainly took place in the Investment Solutions division, which furthered its development (+11% at constant USD exchange rates linked to the change in revenues) across all geographic regions, while Wholesale Banking recorded a 3% decline in expenses at constant exchange rates and Specialized Financial Services saw a 2% increase in expenses excluding the impact of the expanded United scope (5% total).
The Operational Effi ciency Program generated total savings of €240 million at end-2013 (of which €143 million in respect of fi scal year 2013).
At year-end, the headcount totaled 19,632 FTEs (excluding GAPC), down 3% year-on-year.
GROSS OPERATING INCOME
Recurring gross operating income (1) (2) (excluding GAPC) was €1,967 million for fi scal year 2013, up 19% versus 2012. Excluding the impact of the revaluation of own senior debt, gross operating income (excluding GAPC) rose by 8%.
The cost/income ratio (1)(2) (excluding GAPC) improved by 3 points to 72%. Excluding the impact of the revaluation of own senior debt, it improved by 1 point year-on-year to 70%.
PRE-TAX PROFIT
The provision for credit losses came to €392 million in 2013 (excluding GAPC activities), refl ecting a moderate increase of 5% on 2012, in keeping with the Group’s provisioning policy in line with the economic environment.
The share in income from associates, for the most part consisting of contributions from Investment Solutions and Financial investments, climbed by 18% on 2012 to €21 million. Gains or losses on other assets, which made a positive contribution of €17 million in 2013, was mainly linked to a capital gain on the sale of an operating property.
Change in the value of goodwill posted a loss of -€14 million in 2013 due to impairments recorded by the Corporate Data Solutions CGU (cash generating unit), amounting to -€6 million, and assets related to a data center (-€8 million).
Pre-tax profit (1) (2) (excluding GAPC) came to €1,599 million in 2013 compared with €1,285 million in 2012 (i.e. +24%), including an impact of -€195 million from the revaluation of own senior debt, versus -€352 million in 2012. Excluding this impact, the increase in pre-tax profi t was +10% from 2012 to 2013. RECURRING NET INCOME (GROUP SHARE)
The recurring tax expense (excluding GAPC) amounted to €592 million in 2013. The effective tax rate (1) (2) (excluding GAPC) stood at 37% at December 31, 2013, refl ecting the current rise in income tax rates in France.
After incorporating €1 million in minority interests, recurring net income group share (1) (2) (excluding GAPC and pro forma of the CCI disposal) amounted to €1,008 million.
In 2013, GAPC’s net loss was very low at just -€3 million. Recurring net income group share including GAPC (1) (2) totaled €1,004 million 2013 versus €821 million in 2012.
Pro forma of the CCI disposal, consolidated post-tax management ROE came out at 6.0% in 2013 after recognizing a DSN interest expense booked to equity for a net total after tax of €49 million.
FINANCIAL DATA
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Management report at December 31, 2013Restructuring costs were recorded excluding management income for -€51 million. These restructuring costs included a pre-tax provision for restructuring costs of -€91 million, covering all projected severance payments under the Adaptation Plan presented by Natixis in December 2013 (involving about 700 jobs) and assistance and support expenses. They also include various exceptional expenses of -€13 million recorded in Q4 2013 related to the restructuring plan and a pre-tax reversal of employee benefi ts of +€22 million.
The reclassifi cation of management results as accounting results included an impact of -€70 million linked to the pro forma result relative to the disposal of CCIs.
Net book income (group share) totaled €884 million in 2013 versus €901 million in 2012. Accounting ROE stood at 4.8% in 2013.
The Core Tier 1 ratio rose by 120 bp to 10.4% at December 31, 2013.
5.1.4 ANALYSIS OF NATIXIS BUSINESS LINES
5.1.4.1 Wholesale Banking
(in millions of euros) 2013 2012
Change 2013/2012 % %* Net revenues 2,867 2,836 +1.1% +2.1% Commercial Banking 388 373 +4.0% +4.6% Structured Financing 1,047 1,022 +2.4% +4.1% Capital Markets 1,495 1,508 (0.8)% (0.3)% CPM and Other (63) (68) (7.7)% (2.2)% Expenses (1,657) (1,719) (3.6)% (3.1)%
Gross operating income 1,210 1,117 +8.4% +10.1%
Provision for credit losses (312) (265) +17.6% +17.6%
Pre-tax profi t 899 852 +5.6% +7.8%
Cost/Income ratio 57.8% 60.6%
Total capital 6,989 7,807
ROE 8.2% 7.0%
* At constant USD exchange rates.
In 2013, Wholesale Banking’s net revenues amounted to €2,867 million, up 1% versus 2012. Restated for the contribution of discontinued operations that no longer fi t with the Wholesale Banking model as adopted by Natixis in Q3 2012 (€132 million in revenues in 2012 versus a residual loss of €11 million in 2013) and the main non-recurring items (€34 million in 2012 and €38 million in 2013), revenues were up 6.4%.
In 2013, average trading VaR was limited to €6.5 million compared to €7.3 million in 2012 (excluding GAPC). At year-end it amounted to €6.8 million, versus €5.1 million at end-2012.
With management requirements on RWA and liquidity consumption, Wholesale Banking revenues were up 4.0% year- on-year while on-balance sheet conventional loan outstandings fell by 18%. Revenues were driven by fees generated on new transactions and by a reduction in refi nancing costs. Finally, credit line drawdown rates remained very low at 16%.
Structured Financing revenues gained 4.1% year-on-year at constant exchange rates. Business was very strong, with more than €17.5 billion in new loans (€12.9 billion of which recorded on the balance sheet). Net margins on average outstandings were resilient. Service fee income accounted for 30% of revenues, up 5 points on 2012.
V Global Energy & Commodities posted an 8% rise in revenues.
V The contribution of Aircraft, Infrastructure & Export activities fell by 4%.
V The Real Estate Financing business lines saw a 10% increase in net revenues, including a significant upturn in US securitization activities.
V Net revenues from Acquisition Finance climbed by 8% on the back of emblematic international deals.
FINANCIAL DATA
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Management report at December 31, 2013 Revenues generated by the Fixed Income, Foreign Exchange, Credit, Commodities, Cash Management and Treasury businesses were virtually stable compared to 2012. This result included a non-recurring net positive impact of €38 million (CVA/ DVA and dual curve hedging) and a decrease of €85 million following the discontinuation of certain activities.V Revenues from Debt Platform activities were up 2% on 2012, driven by the momentum of syndication deals and the effectiveness of the Originate-to-Distribute model. In the primary segment, Natixis was named Best Euro Lead Bank in Covered Bonds (1) for the third year in a row, No. 1 on the euro bond primary market with French issuers (2), No. 1 in French euro High Yield primary issues (3) and No. 8 on the global euro bond market (4).
V Fixed Income revenues (Credit, Foreign Exchange and Commodities) dropped over the period despite resilient sales activity. This decrease was largely offset by the increase of revenues generated by Short-Term Treasury activities with intermediation volumes up significantly and refinancing costs on the decline.
Equities activities generated net revenues of €418 million, which was stable relative to 2012.
V Alternative Assets activities, which contributed €22 million to net revenues in 2012, were discontinued.
V Income from Flow Derivatives rose by 31% thanks to a solid showing from Equity Finance.
V Solutions activities, however, fell by €30 million due to market effects.
In 2013, Wholesale Banking’s expenses dipped by 3.1% to €1,657 million at constant exchange rates. Including non-recurring income of €15 million related to the overhaul of the pension plan in the United States, payroll costs dropped by 4% in line with the average headcount decrease. IT costs fell by 10%. Other operating expenses were down 11% with the management of lifestyle expenses and savings generated on offi ce expenses (€19 million).
This alleviated the pressure gross operating income, which came out at €1,210 million, up €93 million year-on-year. The cost/income ratio was 57.8% in 2013, down 2.8 points on 2012. At €312 million in 2013, the provision for credit losses increased by nearly €47 million, refl ecting tense economic conditions, particularly in Europe.
Activities were developed under strict management of capital employed. As a result, at December 31, 2013, Basel 3 risk- weighted assets (RWA) at period-end came to €74.5 billion versus €75.6 billion at end-2012.
Based on average RWA calculated in accordance with Basel 3 rules, allocated capital decreased by €0.8 billion, i.e. 10% on 2012. This change affected both the FICT business lines, with a decline of €0.3 billion, and the Financing business lines, whose contribution was down by €0.5 billion.
FINANCIAL DATA
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Management report at December 31, 20135.1.4.2 Investment Solutions
(in millions of euros) 2013 2012
Change 2013/2012 % %* Net revenues 2,259 2,065 +9.4% +11.4% Asset Management 1,832 1,671 +9.7% +12.2% Insurance 268 192 +39.5% +39.5% Private Banking 124 110 +13.2% +13.2% Private Equity 35 93 (62.8)% (62.8)% Expenses (1,662) (1,528) +8.7% +10.8%
Gross operating income 597 537 +11.2% +13.3%
Asset Management 458 417 +9.9% +12.6%
Insurance 131 64
Private Banking 2 (2)
Private Equity 6 58 (90.0)% (90.0)%
Provision for credit losses 12 0
Pre-tax profi t 614 543 +13.2% +15.3%
Cost/Income ratio 73.6% 74.0%
Total capital 3,478 3,469
ROE 12.9% 11.1%
* At constant USD exchange rates.
Investment Solutions posted a 9.4% increase in revenues year- on-year to €2,258.7 million (+11.4% at constant exchange rates). Expenses rose by 8.7% (+10.8% at constant exchange rates). Asset Managemeny’s expenses increased with the implementation of new projects (mainly stepped-up distribution) and development in the United States.
Gross operating income was up 11.2% (+13.3% at constant exchange rates) to €597.2 million.
Provision for credit losses slid sharply by €11.9 million in line with capital gains on disposals and reversals of impairments recorded by the Asset Management business after selling its NAM 2 securitization portfolio.
Pre-tax profit totaled €614.1 million, up 15.3% at constant exchange rates.
At 12.9%, ROE improved by 1.8 points compared to 2012.
A ASSET MANAGEMENT
NGAM furthered its developed over the entire year, as refl ected in the improvement in its professional rankings and awards.
In the United States:
V In 2013, NGAM climbed to 8th place in US mutual fund inflows versus 17th place in 2012.
V Loomis took the Best Fund title in the Global Currencies category for Loomis Sayles Multisector Income Fund. V The international Oakmark fund managed by Harris Associates
was ranked 2nd by Morningstar in 2013. In Europe:
V At the “Grands Prix de la Gestion d’Actifs” Asset Management awards handed out by Agefi, the Livret Bourse Investissements fund, managed by Natixis AM, took 3rd place in the “Equities France” category.
V Seeyond ranked 3rd for Seeyond Flexible MT in the “Cautious Flexible” category at the Globes de la Gestion wealth management awards awarded by Gestion de Fortune magazine. At the end of December 2013, assets under management stood at €629.2 billion, up €50.4 billion (+8.7%) compared to December 31, 2012, at constant exchange rates, driven by a signifi cant market effect (+€37.2 billion) in Europe and the US and by net infl ows (+€13.4 billion), at their highest level since 2007.
FINANCIAL DATA
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Management report at December 31, 2013R
CHANGE IN ASSETS UNDER MANAGEMENT OVER THE YEAR (IN BILLIONS OF EUROS)12.31.2012 Change Net inflows Market effect Other 12.31.2013
12 31 2012 12 31 2013 591.2 629.2 -12.4 37.2 13.4 -0.2
Net inflows of €13.4 billion, i.e. €20.5 billion excluding money market products, underscored the momentum enjoyed by the business. Trends varied by region, however:
V Europe posted net outflows of -€9.8 billion including -€11.6 billion in money market products, undermined by interest rate levels and the change in sales policy of the networks in favor of balance-sheet inflows;
V the United States posted net inflows of €22.4 billion, driven in large part by Harris Associates in equity products and by Loomis in bond products.
At €599.4 billion, average assets under management were up 8.7% in 2013 versus 2012 (at constant exchange rates). At December 31, 2013, net revenues were up 9.7% year-on-year to €1,832.3 million (i.e. +12.2% at constant exchange rates), driven primarily by fees on assets under management in the US. Expenses totaled €1,374.3 million, up 9.6% on 2012 (+12.1% at constant exchange rates). Excluding scope effects (particularly the acquisition of McDonnell at December 31, 2012 and transfer of Wholesale Banking activities in Q4 2012), expenses rose by 11% at constant exchange rates, buoyed by the development of affi liates in the United States and investments carried out by the distribution entities.
B INSURANCE
After several fi scal years impacted by volatility and negative trends in the fi nancial environment, coupled with the indirect consequences of regulatory or tax constraints, 2013 saw the relative stabilization of business conditions refl ected in a sharp rebound in infl ows and net insurance revenues.
In Life Insurance, gross infl ows bounced back by 40.4% to €3.3 billion, thanks in large part to the considerable development of Natixis Life in Luxembourg, which posted increased premiums of almost 50%. The 36% rise in gross infl ows generated in France compared very favorable to the improvement in the French market, limited to 6%. The second half, however, recorded a steep slowdown in gross premium infl ows, as contributing banks rebuilt their on-balance sheet resources. With business picking up again in 2013, Natixis Assurance saw its net redemption infl ows return to the black in 2013 (+€0.4 billion) versus net outfl ows of -€1.2 billion in 2012.
Driven by the rebound in net infl ows and the revaluation sparked by the rally on the fi nancial markets, assets under management gained nearly 4.5% year-on-year.
Provident Insurance and Payment Protection Insurance (PPI) continued to expand at a fast pace of 14.1% on the back of PPI’s rapid development (+20.0%): earned premiums came to €606 million in 2013 (two-thirds of which from payment protection guarantees). The increase in PPI earned premiums can be attributed to the limited seniority of the business (gradual distribution starting in 2007) and the 100% takeover of the guarantees distributed by the Banque Populaire network, previously co-insured (50/50).