Natixis CIB’s co-chiefs, Marc Vincent and François Riahi, talk to Danielle Myles about the improving investment climate in France and the bank’s booming Asia-Pacific operations.

Marc Vincent

When Natixis adopted a co-leadership model for its investment banking business, it could not have chosen individuals with more complementary skillsets. In Marc Vincent, the French bank has a 25-year industry veteran who has worked at both large and small corporate and investment banks (CIBs), while François Riahi brings to the table more than a decade of experience in strategy, including a spell working for the French president.

Just as their career paths differ from one another, they also diverge from that of the typical CIB chief. Mr Vincent is one of the first coverage bankers to join Natixis’s senior management committee, while Mr Riahi entered the banking industry eight years ago. These characteristics have fostered an entrepreneurial climate at Natixis which, compared with the pre-crisis period when profits grew simply as a result of expanding businesses, is now central to a CIB’s performance.

Winning formula

As Mr Riahi puts it, today’s is an industry with winners and losers. “Everyone has to change; you must create and follow through on a strategy, but not all of them will succeed,” he says. “It makes it a really interesting time to be imagining and implementing CIB strategy.” He and Mr Vincent went about doing exactly that as soon as they assumed their joint leadership roles in March 2016.

They merged the advisory and coverage department with the financing and global markets division to create a unified CIB, and committed to internationalise, increase business lines where the bank was under-represented, and use its balance sheet more efficiently. They were motivated by a desire to better align the CIB with the group’s four-year New Frontier strategy, launched in late 2013.

Natixis’s 2016 results show early signs of success. Net CIB revenues grew by 11% and return-on-equity by 260 basis points, thanks largely to the global finance division, which outperformed its US and European peers.

This momentum is supported by the improved operating environment in Natixis’s home market. The significant investor pushback on European deals seen earlier in 2017 – caused by political risk in key EU member states and the euro’s subsequent depreciation – has now subsided. “From visiting investors in a number of countries recently, it’s clear that the situation has improved dramatically and that the French election outcome is positive news,” says Mr Vincent. “We see many investors coming back to buy French treasuries, which is the best evidence that trust has returned.”

Distributing real assets

One of the biggest changes made by Mr Riahi and Mr Vincent has been to expand the bank’s originate-to-distribute (OtD) platform. The global markets business can now distribute the likes of infrastructure, real estate and aircraft financing, in the same way it can with more liquid assets such as leveraged loans.

“When Natixis started the New Frontier plan our distribution rate was very low – in some areas we didn’t do it at all – but it’s now a key element of our business model,” explains Mr Riahi. “This allows us to overcome the size of our balance sheet and originate at a level that wouldn’t otherwise be possible.”

The process began in 2014 when Mr Vincent was already at the helm of coverage and advisory, but it was taken to the next level in 2016 when the co-heads created separate teams for origination, syndication and management of the CIB’s loan portfolio. While these teams share expertise (particularly origination and syndication), the three divisions are independent and have their own targets and responsibilities.

Francois Riahi

The CIB’s distribution capabilities have been further bolstered by strengthening relationships with the buy-side. “Natixis has struck a number of strategic partnerships with the likes of CNP Assurances and other European and Asian investors, which has increased our distribution capacity,” says Mr Vincent. He notes that the bank recently placed with a German investor a project finance-based structured product that matched with their particular requirements.

Separate from the OtD platform, a notable mandate in July saw Natixis help trade finance provider Falcon securitise $150m of multi-bank assets. Falcon’s chief financial officer hailed it as a first-of-its-kind transaction in the trade finance market.   

A solutions house

Expanding its OtD capabilities is one way of making more efficient use of the global markets division’s capital base. The other, which involves Natixis’s well-regarded derivatives team, is by positioning itself as solutions house rather than a flow house. The bank has become more selective in allocating balance sheet to flow derivatives, and instead is focusing on financial engineering and innovative products.

“[Flow businesses] are consuming a lot of capital, but without the value-add. For us it's not a business that is profitable in itself, as we don’t have critical mass, but sometimes it is needed by our clients,” says Mr Riahi. “So Natixis’s strategy is not to have flow derivatives as a business per se, but to provide that service to our clients when there is a need.”

Its structured products team has had great success developing new pay-offs via equity derivatives in particular. Many are based on its CAC 60 proprietary index, which is an extension of the CAC 40 index of Paris-listed blue-chips. Another example uses recently issued shares that are subject to a lock-up period as the underlying, and creates a structured return that allows investors to benefit from the lack of liquidity premium.

Multi-boutique strategy

The best example of a business in which Natixis is looking to increase its small market share is mergers and acquisitions (M&A). Just five years ago the bank was almost completely absent from M&A, but in 2016 it generated €100m in revenues. It has pushed into this market at an opportune moment, given that M&A volumes in recent years have hit record highs.  

Natixis is expanding this business in a tactical way, namely by following the ‘multi-affiliate’ model of Natixis’s asset management business. Rather than increasing headcount, the CIB has bought majority stakes in independent boutique advisory firms in Spain and the US, and is working with them as and when appropriate.

“We aren’t fully integrated, and we fully respect the DNA of their teams, but we do coordinate by cross-selling and working together on a case-by-case basis in situations where we feel we can produce good results,” says Mr Vincent. “It’s a fairly important way in which we have been developing our M&A business.”

In 2016, Natixis also acquired an 11.8% stake in investment bank EFG Hermes and now has two directors on its board. This was the result of a debt restructuring, rather than a strategic decision as part of the CIB’s ‘multi-boutique’ plan, but it led to a similar arrangement whereby they collaborate on client work when appropriate. “We feel it’s a great investment bank in the Middle East with a number of key contacts and a fairly impressive track record,” says Mr Vincent. “We’ve already won mandates on a joint basis and we are exploring how we can work together more, mainly in equity capital markets and M&A.”

The CIB has also launched other M&A initiatives, including an infrastructure-focused team that is starting to produce good results, particularly in Europe and the US.

Best of both worlds

As with M&A, Natixis is expanding its footprint in Asia-Pacific, the region in which it has the most room to grow. When Mr Riahi took the helm of the CIB’s Asia-Pacific operations in 2012, he spotted a missed opportunity. There was growing local demand for energy and commodities financing, trade finance, infrastructure development, aircraft finance and structured products – areas where Natixis already had expertise in other regions.

The CIB built up these capabilities in Asia-Pacific over the next five years, bulking up in Australia, opening a branch in Beijing and then Taipei, and it is now considering opening in South Korea. Between 2012 and 2016, the proportion of CIB revenues generated out of Asia-Pacific grew from 5% to 11%. Natixis’s Asia-Pacific expansion comes at a time when US, Australian and many other European CIBs are retreating from the region. This has worked to the French bank’s advantage, because recruiting the best talent has become easier. Despite its expansion in under-represented markets, Natixis is not striving to become the world’s next big CIB. Its co-chiefs see great benefits in its current scale, whereby it is selectively active in businesses on a global basis. Regulatory compliance, still one of the industry’s biggest challenges, is a good example.

“Of course when you are small the cost to comply may proportionally be heavier than for the bulge-brackets, but I really do believe our size is an advantage in this area” says Mr Riahi. “Our footprint means we have a good view of what is going on around world, but compliance is more achievable than if we had a huge operation.”

For its clients, it has direct benefits too. “Something we often say to our clients is that we are big enough to deliver and small enough to care,” says Mr Vincent. “We don’t claim to be a global bank, we don’t do everything everywhere, but we have a number of areas of expertise that we have developed globally, and which we do very well.”

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