Natixis SA (NTXFF) CEO François Riahi on Q3 2018 Results - Earnings Call Transcript

About: Natixis (NTXFF)
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Natixis SA (OTCPK:NTXFF) Q3 2018 Earnings Conference Call November 9, 2018 3:00 AM ET


François Riahi - CEO

Nathalie Bricker - CFO

Pierre-Antoine Vacheron - Head, SFS, Payments Division


Delphine Lee - JPMorgan Chase & Co.

Guillaume Tiberghien - Exane BNP Paribas

Maxence Le Gouvello - Jefferies

Jacques-Henri Gaulard - Kepler Cheuvreux

Flora Benhakoun - Deutsche Bank

Pierre Chedeville - CM-CIC Market Solutions

François Riahi

Good morning, ladies and gentlemen. I'm François Riahi, CEO of Natixis. I'm with Nathalie Bricker, CFO of Natixis. So thank you for attending our Q3 results call. I will present a global picture of our results, and Nathalie will detail the results of our different business lines.

All in all, as you have seen on our releases, it's a good Q3 for us and a very good three quarters of the year for all our businesses. Maybe, first, on our Slide 3. We wanted to start with a few introductory remarks on our growth ambitions and capital management policy. But actually, we feel that we don't say anything new in this slide. At least, it was the purpose of this slide, not to say anything new. So we reiterate that what we told you two months ago when we announced the project to sell our retail banking activities to BPCE S.A., meaning that post transaction our envelope for potential investments of our New Dimension plan will rise to €2.5 billion. Consistent with our New Dimension objectives, we are primarily contemplating strategic opportunities in Asset & Wealth Management and secondarily in M&A and payments. When I say primarily and secondarily, it's not a question of timing. It's more a question of amounts, with a clear focus on value creation, a strong track record and strong financial discipline. To illustrate this, we have the details, I would say, business line by business line, what we can consider, what we are looking for in terms of an acquisition.

And if we take payments, for example, our ambition, clearly stated, is to become a European pure-player, but also taking into account our existing setup and our commitment to value creation in the context of high market multiples. We could, on one hand, look at acquisitions, such as the one we've made with Balinese -- and on the other hand, as a potential asset combination, as we have already said.

We have clarified at this occasion the fact that we don't plan a need to takeover a bid on Ingenico, which was for us already clear in our press release of October 11. Having said that, as of today, the payment of the special dividend up to €1.5 billion we announced in September remains our base case as there is no material strategic opportunity in the pipe. And I also remind you that our intention is to redistribute to shareholders the excess capital that we'll not have spent through investments over the plan in line with our strong disciplines in terms of capital.

Now let's move on to the key financial metrics for the first nine months of our New Dimension strategic plan, which is well on track. We have experienced net revenue growth of 6% at constant exchange rate, with a positive jaws effect of 2 percentage points, excluding the Single Resolution Fund contribution. In the meantime, our ratio cost of risk on net revenues that we have defined also to take into account our asset-light strategy, remains below 2% in the context of low cost of risk globally in the market.

In terms of metrics per share, we've increased our EPS by 16% and our tangible book value by 9% since the beginning of the year despite the higher SRF contribution we had to book in the first quarter, which I think demonstrates our ability to create value for our shareholders.

Our Core Tier 1 ratio keeps on improving and now is at 10.9%, very close to our 2020 target of 11%, thanks to our strong capital generation since this is a 10 bps increase over the second quarter, after taking into account the acquisition of MV Credit we have closed this quarter.

Finally, you know that the main indicator for us is our profitability, and this clear focus on value creation is highlighted by our return on tangible equity, which is improving by 119 -- 190 bps year-on-year at 14.1%, here again in line with our 2020 targets.

If we look at the third quarter most specifically, we have recorded €2.4 billion in net revenues, which is an 8% increase compared to the third quarter of last year, with expense growth of 5%. If you look at the constant figures that are probably more -- an underlying constant figures, I will come back on exceptional a little bit later, it's a 3% increase on revenues, a 4% increase on expenses.

I would like to highlight that our reported gross operating income is up 13%, and our reported net income at €422 million is up 10% year-on-year, which is, I think, a good achievement.

On the first nine months of 2018, we have recorded €7.4 billion in net revenues. And here, if you look at the underlying trends, this is a 6% increase at constant exchange rates, resulting in a gross operating income up 6%. We have generated so far €2.2 billion in profit before tax and €1.3 billion of net income, which is a 15% increase compared to last year.

A few words on exceptional items. We have two usual suspects for exceptional items every quarter. It's the exchange rate effect on our deeply subordinated notes denominated in dollars. It's a €5 million positive impact this quarter. And we have on the expense side the transformation and business efficiency investment costs that have increased as we are implementing our plan and represent €27 million of costs in the third quarter of 2018, compared to €15 million last year. So this is traditional exceptional items.

We have also given some precision on where this transformation and business efficiency costs are borne, what business lines are bearing them. You have the detail in the chart. But actually, the real two exceptional items we had this quarter, by coincidence, offsets each other. It's two litigations, one ending positively for us, one ending less positively for us. The first one is booked in net revenues. It's a reversal of the provision we booked two years ago regarding the Société Wallonne du Logement and it was booked in exceptional two years ago negatively. Now it's positively as we ultimately won the case at the Supreme Court of Belgium. The second one is booked in the cost of risk when we talk about litigations that reached Société Supreme Court. Obviously, old topics. And the second one is in this category because it relates to the Madoff case where we were trying to claim for an insurance to cover us against a fraud and for, I would say, legal reasons, the French Court of Cassation finally has taken a decision that is not in our favor. And we have this impact -- negative impact of €71 million in cost of risk.

So really by coincidence, finally, this -- the net impact of these two cases is only negative by €3 million on the quarter. All in all, you can see that the net impact of exceptional items, both in the third quarter and in the first nine months, is quite limited at around €20 million negative. Let's now have a more detailed look at our Q3 underlying results. Net revenues are up by 3% compared to last year, with underlying growth across all our businesses. And Nathalie will detail that a little bit later. Costs are growing a bit more on the back of FTE increase and digital investments as well as transformation projects embedded in the New Dimension trajectory we shared with you at the Investor Day. On the cost side, we wanted to mention that we are still bearing €20 million of annualized costs from the cash equity with no revenue contribution this quarter as the transfer of these activities to Oddo has been effective since July 1, 2018. These costs will disappear in the second half of 2019.

The cost of risk is well under control with a level of provision that almost halved versus last year. Again, it's -- the market context is quite positive on this. Altogether, these elements result in a pretax profit up 4% year-on-year at €691 million. Our net income is increasing by 7% compared to last year, and I would point out that, historically, this is the highest third quarter in terms of earnings per share for Natixis. The third quarter is traditionally more difficult with the month of August, which is quite slow in France traditionally. The businesses in other countries, too. The businesses generated a 12.6% ROE and Natixis an 11.6% ROTE with both metrics improving versus third quarter 2017. And both metrics are quite good for a third quarter.

If we look at the nine months, you have seen the main pillar trends already with net revenues up 6% at constant exchange rate, the positive jaws of 2% excluding SRF. Our cost-to-income ratio is at 60 -- a little bit below 68%, which is an improvement. Our pretax profit is up 6% year-on-year, with our cost of risk being down by more than €18 million, reflecting, of course, the transformation of our model and the situation of the market. With the positive impact of the U.S. tax reform, notably, our net income is progressing even more at €1.3 billion, which is an 8% increase. Again -- and I think that's something I want to underline, strong profitability improving across all our business lines with an ROE of 15.4%, up 120 bps year-on-year, and an ROTE at Natixis level up 190 bps at 14.1%. It's, for me, very, very satisfactory that all our businesses -- our 4 businesses, are progressing in terms of profitability compared to a very good 2017 year, I'll remind it.

If we move to cost of risks, not much to highlight, which is always a good news. It remains at low level, 18 bps in the third quarter, 19 bps for the first nine months. You see it's quite flat during the year. And as you know, we want also to underline our cost of risk of net revenues as we are growing more our businesses that are asset-light, that are less -- that are not having cost of risk. So the improvement of our cost of risk on net revenues is even better.I will finish this first part of the presentation on the financial structure before leaving the floor to Nathalie.

We have had a very strong organic capital creation in the third quarter of 2018 with 44 bps of organic capital creation. And I think what is very positive, it comes both from our results, but also from a strict management of RWAs that we -- is a little bit mark of fabric for us. And we continue to do so. We booked in the third quarter one acquisition, which is MV Credis, announced previously, but closed in the third quarter 2018 for 12 bps. Hence, we have -- it leads us to a fully loaded Core Tier 1 ratio of 11.1% before dividend accrual and 10.5% when we accrue the dividend.

As you know, we do a pro forma also of this ratio. Pro forma for the transactions we have already announced and that are not yet closed. Here, we are talking about the disposals of Selection 1818 and Axeltis. The IPC impact, as well as two acquisitions, one already announced, WCM Investment Management. The other one we are announcing today or yesterday, Massena Partners. Massena Partners is a key player in the ultrahigh-net-worth space in France and in the [indiscernible] countries with a key expertise in alternative assets such as private equity and real estate. It's really very much in line with our New Dimension plan, and I think it echos the announced disposal of Selection 1818 as we are moving on the high end of this business, and it's expressed both by the disposal of Selection 1818 and by the acquisition of Massena Partners, which is clearly a milestone in our -- the strategy of Natixis Wealth Management to refocus its activities.

You may remember that our pro forma fully loaded Core Tier ratio was at 10.5% at the end of June, meaning we have actually announced a new acquisition accrued for a 60% payout and improved our Core Tier 1 ratio by 20 bps, which is quite satisfactory as far as I am concerned. I think it's a good performance.

So let's now go into more details on the businesses, and I leave the floor to Nathalie.

Nathalie Bricker

Thank you, François, and good morning to all of you. And to start with, Asset & Wealth Management business. We are happy to show a continued growth momentum for Asset & Wealth Management with a 7% revenue growth in Q3 2018 and a 14% at constant exchange rate over the first nine months of the year. First, we managed to maintain our fee rate above 31 basis points in Q3 2018, which is stable quarter-on-quarter, but improving year-on-year and still above our 30 basis points target. If you look at the breakdown of our fee rate, you'll see that it has remained stable this quarter, both in Europe and North America. To us, this clearly illustrates the strength of our resolutely active positioning against margin pressure for the wider industry and the success of our high-margin liquid alternative strategy. Second, our level of performances in the third quarter is a touch above the third quarter of last year, meaning the 7% revenue growth you'll see in this quarter essentially comes from management fees.

To be exhaustive on the revenue side, a quick comment on Wealth Management which revenues are flat this quarter, but which features a solid 11% revenue growth year-to-date. It's also important to highlight the significant efficiency gains we've made with positive jaws effect and a cost-to-income ratio improvement, both in the third quarter and year-to-date. So you had a number in mind on a year-to-date basis. The jaws effect is 6 points of percentage positive at constant exchange rate, and the cost-to-income ratio is down 320 basis points to 67.5%.

On the cost side, we've flagged it already, about €10 million of exceptional charge this quarter related to the operational efficiency plan we announced at our French affiliate Ostrum-- such plan aiming at delivering €20 million cost saves, which are to be fully captured at end of 2019. All in all, this translates into a gross operating income up by 26% year-on-year at constant exchange rate for the first nine months and 11% for the third quarter. Our ROE is 14.6%, which is 120 basis points improvement in Q3 and a 220 basis points year-to-date. Now moving to the asset under management. The strong performance of asset management this quarter is also to be put in the context of volatile market and risk of environment. During the third quarter, as you can see there, we've actually managed to attract €5 billion of net inflows, which is the eighth consecutive quarter of positive net inflows, notably across equity, fixed income, balanced and money market funds, which compares with the third quarter 2017 at €3 billion.

Over the first nine months of the year, we've gathered €20 million -- €20 billion in net inflows. I'd really like to emphasize that our multi-boutique approach is a real strength in today's market. Again, that has positive net flows across our affiliates and all our strategies all the time, but the diversification of our model is such that there is always demand for our products, especially in our high-margin liquid alternative strategies, which generate a positive mix effect and thus positive top line dynamics. We now manage €861 billion, the real-world balanced between Europe and North America, including a positive €6 billion market effect this quarter, and a €2 billion scope effect from the integration of MV Credit in the private space. At nine months 2018, we featured double-digit revenue growth at constant exchange rate, both in North America and in Europe.

Now just a few words on the next slide to remind you of the resilience and of the flexibility of our multi-boutique model since we've constantly delivered superior revenue growth compared to peers together with a high degree of cost flexibility. Being a truly active asset manager, performance is key. And as such, we prefer to work on the flexibility of our cost base, rather than the cost-to-income ratio figure, which does not necessarily reflect your capacity to create value in a potential market downturn. I'd just remind you that 60% of our Asset Management cost base is flexible as a large part of it is made of variable compensation, which is defined by contracts with our affiliates, and which, broadly speaking, is a function of revenue growth.

Now that's it for Asset & Wealth Management. And let's now go through the CIB. The first thing I want to highlight in the performance of our CIB so far this year is ROE, which stands at 14.4%, up 30 basis points compared to last year, which I'm sure you all remember was a good year for CIB, especially in the first semester. Despite this high basis of comparison, our revenues, excluding CVA/DVA, are actually flat both in the third quarter and year-to-date at constant exchange rate. If we adjust for the parameter FX stemming from the sale of the cash equity, they're actually up over both periods. The expenses are well under control since they're up less than 2% year-on-year, keeping in mind what François said earlier regarding the costs on the cash equity we are still bearing until the middle of next year.

Our ratio net revenues of our RWA at nine months 2018 is in line with our New Dimension 2020 target, and I'll give you a bit more color about our RTD model shortly. Finally, a few words on our green and sustainable hub, which is showing good momentum and with our innovation capability that has been recognized by the banker with the award of Most Innovative Investment Bank for Climate & Sustainability. If we have now a more detailed look at our global market revenues, excluding the cash equity, that is no longer contributing to our top line since July 1, our revenues are up by 1% this quarter compared to Q3 2017. In fixed income, we are flat with good levels of activity across credit and forex and a resilient trade business despite unfavorable market conditions, especially in Europe.

In equity, our revenues are up by 3% this quarter when you exclude last year's €9 million contribution from the cash equity in the third quarter. Here, I would say that the momentum for equity derivatives is pretty strong in the EMEA region, especially in France, while we are facing challenging market conditions in some geographies in Asia. If we now move on to Global Finance. Our focused sectorial approach is clearly bearing fruit, with revenues up by 6% in Q3 and 13% in nine months at constant exchange rate, driven both by energy and natural resources and real assets. New loan production remains very dynamic across our sectors, with a 33% average increase compared to the third quarter of last year, but I come back to that in a few seconds.

Finally, in investment banking and M&A, revenues are down as the overall market in France and Europe for ECM. And M&A has been relatively lackluster so far this year. On the other hand, we've had a good performance from DCM. And on the M&A side, we see a good pipeline for the end of the year. As I just mentioned, the success of our Global Finance activities is largely being driven by the strength and the resilience of our originate to distribute model. That comes together with a clear focus on our four key sectors. This has allowed us to grow origination by 12% per annum over the past five years and move from an average distribution rate of 29% to 70% on real assets. This means we have increased the share of fee and commission in our revenue mix whilst reducing our balance sheet through distribution and expertise.

On that point, I'd like to highlight that we do not originate loans that we would not feel comfortable having on our balance sheet. Also, a great success of our RTD model that we view as clearly differentiating and that we are improving by the day, is the distribution to nonbanking financial institutions, insurance, [indiscernible] for example. Having an insurance expertise ourselves, we speak the same language, and the need for both yield and diversification at the same time makes our product very attractive as they offer unique combination of both characteristics, which we think will still hold in a rising rate environment.

Part of this improved to NBFI is down to the network of institutional partnerships we've built over time and which should support further growth in the future. As you can see there, we've agreed on two new partnerships in Q3 2018 for a total of 10, and the partnerships announced with Ostrum is another internal initiative that should help us to distribute our products to a wider range of investors globally. Now moving on to Insurance. Regarding Insurance, the third quarter was marked by an acceleration in the banking revenue growth with a 9% increase year-on-year resulting in an 8% top line improvement so far this year, comparing very favorably with our New Dimension target.

Our costs are progressing at a slower pace, which means the positive jaws effect efficiency gains reflected by the low cost-to-income ratio and a gross operating income up by 10% compared to last year. Our ROE stands at around 29% both in Q3 and nine months 2018, which is a material improvement compared to last year, partly driven by the buyback of BPCE Assurances minorities, meaning we are not deducting minorities from the numerator of the ROE anymore. In terms of commercial indicators for Insurance, we've experienced premium growth of 7% in Q3 2018 and up 4% in nine months 2018, with growth both in life, Personal Protection and property and casualty. Life Insurance assets under management now stand at around €60 billion, compared to €54.7 billion at the beginning of the year, which is close to a 10% increase and with a share of unit-linked at 25%, 3 points of percentage higher than last year, unit-linked products accounting for 34% of growth inflows so far this year, which compares with market average a bit below 30%.

On the P&C side, we are also very pleased with the development of our combined ratio, which keeps on improving and now is below 92%, both in the third quarter and year-to-date. Lastly, Specialized Financial Services, which had a very good quarter with a seven revenue growth -- 7% revenue growth, of which 16% in the payments business, with the integration of our recent acquisitions bearing fruit as they contribute 60% to the overall growth of our payments top line. In terms of commercial activity this quarter, we have, for example, business volumes up by 25% year-on-year for Dalenys and PayPlug, our revenues from Prepaid & Managed solutions up by 49% year-on-year, following the successful integration of Comitéo. Outside payments, Specialized Financing and Financial Services had a solid quarter with revenue growth of 5% and 4%, respectively.

Costs for the division are well under control since they're only up by 2% year-on-year at constant scope, and the cost of risk remains at very low level. All in all, our SFS businesses generated an ROE of 13.7% in Q3 2018 and of 14.4% in nine months 2018, which is a 40% -- which is a 40 basis points improvement compared to the first nine months of 2017. To finish with Corporate Center, but I won't spend too much time on it as you've already seen the good results published by Coface. Kust a quick word on the expenses, excluding Coface- and the Single Resolution Fund contribution, which are down minus 15% so far this year, which is in line with the objectives we set out for the New Dimension.

It's now over for the business line, and I leave the floor to François for the conclusion.

François Riahi

Very quickly, just a brief word maybe on the disposal of the retail banking activities we announced on -- sorry, where is the slide? That we announced on September. I already commented on the capital deployment strategy, so I won't come back to it. But all the numbers we gave you two months ago are still valid, following these set of results. And the closing of the transaction is still expected by the end of the first quarter 2019. So to conclude this presentation, you see the figures on the chart. New Dimension is off to a good start, and our results over the first three quarters of the plan are very much in line with our ambitions and our targets for this plan.

As you know, we have a habit in Natixis that the strategic plan is really at the center of how the company is run. We set ambitions and targets to reach, in this case, in three years' time, at the end of 2020, and all the company, all the business lines, all the support functions are mobilized around this plan to transform our businesses and to deliver the plan that we have defined. So some of these indicators might on one quarter be different. I take an example. If you look at the RWA growth, it can seem far better than our targets, but I just want to remind that we see additional RWAs coming on regulatory topics along the road. And so it makes sense, they have not materialized yet. So it makes sense that we are in advance for our plan. We factor them in, in our plan.

So the targets are for the end of 2020, not to be met at every quarter. But I think it is really comforting to see on these figures how we stand today compared to our 2020 target. And I think that's the real satisfaction of these Q3 results.

So now we are done for the presentation. Thank you for your attention. And we are, of course, at your disposal for your questions with Nathalie.

Question-and-Answer Session


[Operator Instructions]. We have one first question from Mr. -- Mrs. Delphine Lee from JPMorgan.

Delphine Lee

So I just have two questions. First of all, just a clarification on capital. Just trying to understand sort of just for this year because obviously, next year, pro forma of the transaction yield, you're going to be above 11%. But for this year, is your objective to get close to 11% CET1? Or would you be happy to have your CET1 more at the lower towards with 10.5%, 10.6%? And also related to capital, in terms of all revenue growth, I see you had a minus 1% decline so far this year. Does that mean that you have taken -- I mean, any regulatory impact including TRIM? Because I think there were some impacts that you had in your plan. So just wondering how much is to come in Q4, maybe in 2019, just on family bit -- the other big growth if we have a little bit of a catch-up in the next three years, particularly in '19. My second question is on M&A and payments in particular. I just wanted to clarify a little bit more sort of in the payment business. Which activities are you particularly interested in? And I'm just trying to understand what kind of partnerships or JVs or acquisitions you would be looking for really.

François Riahi

Thank you, Delphine. On your first question, we are quite boring. We are not changing any targets during our plan. So our target is still the same for capital also. We have a target of 11% at the end of 2020. Before that, we want to be above 10.5%. If this doesn't change we don't have any target for the end of 2018 that will be different from that. We don't feel obliged to be at 11% at the end of 2018. That's not part of our target. Again, our targets are for the end of 2020. And what we have -- we will keep, even after the transaction next year, this idea that we can be between 10.5% and 11% before the end of 2020. On TRIM, there's no impact of TRIM in our RWAs so far. Actually, we don't know exactly when there could be an impact and if there could be an impact. So it will come later. We cannot be more precise on that. It depends on our interactions with our supervisors. On your second question, we have tried, the more precise we are, the more questions you have, so I try not to be more precise. The -- we said what we are interested in, in payments in terms of capabilities is the development in the merchant solutions. That's what we did with Balinese, what we want -- I want to restate is payments is core to our strategy. Our strategy is very ambitious, it's to become a European pure-player at the end of 2020. And we look at all the possibilities that allow us to reach our ambition. We don't have any taboo, but we don't have any preferred solution. We look at how we can achieve our ambitions.


[Operator Instructions]. We have one question from Mr. Guillaume Tiberghien from Exane.

Guillaume Tiberghien

I have two questions. The first one relates to the contribution from the fair use acquisitions and the disposals that you have done in the last 12 months. Can you maybe give us the net of those two elements in terms of revenues and in terms of costs on a year-on-year basis? And maybe a request on the -- in the future, could you give us actually the contribution from the various acquisitions because you do lots of small deals, and you say you're very disciplined, but it's very difficult for us to measure the return on invested capital if you don't provide those information. The second question relates to the jaw between revenue and cost growth. I think if I look at the three main divisions of Insurance, Asset Management and CIB, and I compare with your target for 2020, you, on average, for the three businesses, you want jaw effect of 1.2% per year. At the moment, you're not running at this run rate. I understand you can't do it on a quarterly basis. But do you expect for the full year '18 and full year '19 to have roughly 1 percentage jaw effect for these businesses?

François Riahi

Thank you, Guillaume. On your first question, we don't have these figures. I hear what you ask. I think we try to give you some element on that -- on the acquisitions we made during the New Frontier plan. I don't remember if it was last quarter or the quarter before, but -- so of course, we continue to give some feedback. Of course, it needs a little bit of time to integrate the new acquisition, but we have done it for DNCA, we have done it for Natixis Partners. So it's -- we try to give you this feedback. On the jaws, it's -- as you -- the devil lies in detail. You see that it depends if you take into account the SRF. It depends also about -- we detailed this quarter some very specific effect on the cash equity of the Ostrum plan. We have a plan, a strategic plan, that is a plan of transformation. I insist on that. It's not a plan of continuation. We have very transforming projects on every of our business lines. We have also the transformation and operational efficiency plan. So we are investing in these different topics. That's why I'm insisting on the fact that we have set targets that, as you know, are very important to us. We are not -- it's not just targets that are put in paper,but targets we live with. And -- but we have targets for the end of 2020. Again, these -- on the nine months of the year, when you look at the jaws effect globally for Natixis, we are in line with the plan. But of course, if you look business by business, you can see some specific investments, some specific situations. And we don't want to have more details in terms of targets quarter by quarter, or business line by business line about what we do strategic plan.


We have another question from Mr. Maxence Le Gouvello from Jefferies.

Maxence Le Gouvello

My question would be on asset management on the Slide 15. You kindly gave us the breakdown of inflows over nine months by type of product, equity, fixed income and balance -- can we have the breakdown on Q3 please?

François Riahi

We have to go back to the slide. As -- Nathalie, I think Nathalie said in our presentation that for these three asset classes, the net inflows were positive in Q3 2018. We don't want to give more detail than that.


We have another question from Jacques-Henri Gaulard from Kepler Cheuvreux.

Jacques-Henri Gaulard

I was very interested by your acquisition of Massena, which seems that you seem to reorient your private banking strategy and actually took --start taking it a bit more seriously, if you don't mind me saying that. So can you elaborate a little bit on it, the type of clients you want to get? And does it mean, not now, but for the next plan whenever that happens, we could have a little bit more detail, or probably a little bit more importance given to Private Banking going forward?

François Riahi

I won't comment on your comment. You're free to have comments. Actually, I think we have clearly defined what we wanted to achieve with Natixis Wealth Management. And as you may have seen, we have even rebranded our asset -- our Wealth Management. It used to be Banque Privée 1818. We rebranded it in Natixis Wealth Management to show, I would say, more -- the link with our other businesses, also with our Asset Management in particular. And we have decided to really move on the upper end of this business. So we are quite happy about the acquisition of Massena. The Massena average client portfolio is 30x the size of Selection 1818. So I think the disposal of Selection 1818 and acquisition of Massena is a real change -- a structural change in our capabilities and our positioning on this business. We have, of course, to first improve the cost-to-income ratio of the business. And it's well on its way, before having larger ambitions and bigger ambitions for this business. But this business is core to us. It's part of the Asset & Wealth Management division. That is of course, very, very important for us and there's no -- it's not a marginal business or -- it's really a core business, and we are very happy to develop it.


[Operator Instructions]. We have one question from Mrs. Flora Benhakoun from Deutsche Bank.

Q - Flora Benhakoun

The first question is again regarding the inflows, the €5 billion for Q3. Could you also tell us in which affiliates you saw net inflows this quarter? And in particular, whether you saw outflows at high risk. And then also a question linked to that is regarding H2O. We've been talking in the past about the fact that the company is close to being size-constrained given the strong growth that it had in assets under management. So I just wanted to ask where we stand regarding a potential size constraint. And the second question is still regarding Asset Management. I just wanted to have more details on the plan -- the efficiency plan, that you mentioned on Ostrum. What is it exactly that you are you doing? And what can we expect from there?

A - François Riahi

Actually, as you know, we don't detail the flows by affiliates. I think, as Nathalie expressed it, the strength of our model is the diversification. It's the fact that we cover very different asset classes. And every quarter, there can be some -- we cannot -- our goal is not to have similar flows every quarter on every affiliate. I think the global picture is more significant. Now you're talking about Harris. As you know, it's one of our most important affiliates in the U.S. and the one with the higher fee rates in the U.S. And you have seen that our fee rate in the U.S. has been stable quarter-on-quarter. So it's important to mention. I think, clearly, you have seen that both our businesses in the U.S. and in Europe have been very -- are performing very well. Probably, the U.S. market has been more challenging than the Europe one for the first nine months of the year. But all in all, I think that what we have seen is really positive. For H2O, yes, still stronger net inflows this quarter. I think H2O has been diversifying their products. And if we have to -- if in the future we reach some capacity constraints, we'll see. But for the moment, I think they do a great job in diversifying their products to mitigate this risk.


We have another question from Mr. Pierre Chedeville from CM-CIC.

Q - Pierre Chedeville

A follow-up question regarding Ostrum. First of all, I don't know if you...

A - François Riahi

I forgot to answer -- that was the answer to the question. I'm sorry. If you allow me, I'll answer to the question of Flora on Ostrum. So on Ostrum, we have a clear efficiency plan. It's about downsizing the number of our funds. We have too many funds in Ostrum. We can have less, and it will reduce our costs. So that's the type of things we do in Ostrum. It has been identified in our transformation and personal efficiency plan. And we are just implementing it following this plan this quarter. Sorry to have interrupted you, but please go ahead.

Q - Pierre Chedeville

No problem because it wasn't my initial question. But just to follow up on Ostrum and your answer. First, I would like to know if you give this information, when you make a plan of €20 million, how many points does it represent in terms of cost income, I guess, that you don't give any target to the market of cost-to-income ratio for Ostrum. But maybe, in relative terms, is it a significant -- is it something significant or honored? And on Ostrum, too, how do you -- how could you qualify -- it's not giving any precise figures, but how would you qualify the commercial development with the networks in terms of use itself? Because I guess that was unit-linked with the network historically. And how do you see the development of Ostrum and the network? Another question regarding insurance. Could you give us any updates regarding the equipment rate in terms of insurance for the Caisses d’Epargne and Banque Populaire? And my last question is clarity equation, regarding prepaid management and solution because as a banking analyst I'm not very familiar with a large-ticket business. And I'm very surprised of your growth, which is at constant scope of 21%, if I'm correct. And even if the demography in France is not so bad, I don't see how can we make such a growth in this mature market even if you gain some 0.2 market share, if I'm correct too. But I don't understand the growth of this market. So if you could give us a little bit [indiscernible] on that subject, it could be useful when we talk to our clients.

A - François Riahi

Thank you very much. A lot of questions. So on Ostrum, we have -- as you expected it, we don't give specific figures by affiliates. A €20 million efficiency plan is clearly a significant one in absolute number. When it comes to the relationship with the networks, of course, Ostrum is not the only affiliate working with the networks. But of course, historically, the closest from the network. I'd like to say actually on this topic that historically the distribution of Asset Management to the networks was part of Ostrum, Natixis Asset Management before. We changed that really because we -- the idea is really that Ostrum now is becoming an affiliate really and not holding -- or part of the holding.

So as the distribution teams among 4,000 networks have been moved to Natixis investment managers' teams and are no more in Ostrum also because we want to develop all affiliates in our networks. Of course, the retail customers cannot buy every of our strategy. Of course, we are cautious about that. But -- and Ostrum remains the main player here. But we want also to develop other affiliates, and it's working quite well, for example, with the DNCA or others. But clearly, I think we have had great success with Ostrum and the networks in developing products like Sélectiz that worked very well. We have implemented a program called LIA which is robot advisers in the networks of Caisses d’Epargn and Banque Populaire in line with MiFID II implementation so that the commercial people in the Caisses d’Epargne and Banque Populaire can work with the clients on what are their needs in terms of financial investments and what solutions we can provide to them given their appetite for the risk and their project. That's a very important digital development that happened. It's -- of course, it's a common project between Natixis and BPCE and in Natixis between Asset Management, Insurance, and of course, Caisses d’Epargne and Banque Populaire. So it has been deployed in Caisse d'Epargne and also in Banque Populaire very recently. So we expect it to provide us some more business for our -- for Insurance product and Asset Management. So we have plans to continue to intensify relationships with the retail networks. The next question is about Insurance. Nathalie, do you want to take it?

A - Nathalie Bricker

Equipment rate about Insurance and concerning the equipment rate in the networks, you can say that it's a bit below 30% when we know that best-in-class players in France are above 40%. So there is clear room for us to catch up and great visibility since the client topology are not so different than for others.

A - François Riahi

And your question about payments. I take the opportunity of Pierre-Antoine Vacheron being with us. I leave the floor to him as he is a real specialist of the group.

A - Pierre-Antoine Vacheron

Thank you, François. So to answer your question, prepaid is not only [indiscernible] so [indiscernible] is one of the components of this line of business, which is growing, but not at the 20% growth rate that you are mentioning. There is growth in this segment, which is linked to the -- still the equipment potential of employers, of companies, which enables us to make some growth. But besides that you have also prepared cap programs. So for instance, you have discounts which are also growing pretty fast. You have incentives or subsidies coming from the public authorities, which are shifting to cards. So from paper to card. You have also some, in our case, some specific businesses like [indiscernible], so these type of social payments. So all those lines of business are explaining the quite attractive growth that we are witnessing in this segment, which is to some -- to give you some comparison business quite similar to the one [indiscernible] card in Germany, but at much lower scale.

End of Q&A

François Riahi

Thank you, everyone, and I invite all of you to use local [indiscernible] instead of another competitor with a fruit name that nobody can spell anyway. Okay -- so I understand this was the last question. So thank you very much for your questions. Our next call will be next year on our annual results on the 13th of February. Thank you very much.