Natixis CIB’s innovative ‘multi-boutique’ approach

“I grew up in Tunisia, just 15 metres from the sea,” says Mohamed Kallala. “What I learned was that if you have a boat and want to stay stable, you need ballast. And if you want to go fast, you need a mainsail. If you want to fish or win a race, you need both.”

Mr Kallala, global head of Natixis Corporate and Investment Banking (CIB), uses the analogy to explain his view on guiding a bank through a crisis. Since he joined the French bank in 2005, he has already had to navigate four: the global economic crisis in 2007–09; the sovereign debt crisis in 2011; the impact of Covid-19 from early 2020; and, most recently, the impact of the war in Ukraine with its associated rising inflation and interest rates.

To do this, he has championed both the ballast of a corporate strategy that ensures a diversified portfolio and the mainsail of a business line strategy that can take advantage of opportunities.

“In business lines you have to be very smart, very technical and — from time to time — aggressive, when you feel like you have an advantage over other financial institutions,” he says. “At the corporate level, you need to think about having a balanced business model. You need to be sure that your resource allocation, your balance sheet, won’t be hit dramatically if something happens in the market.”

Client focus

Mr Kallala, who started his career as a trader, has had a front-row seat for the crises of the past two decades. He was appointed to his post in early February 2023, but was previously co-head of Natixis CIB from November 2020, so the job is not new to him, he says. When he joined the bank, he oversaw the corporate and merger and acquisition (M&A) business in the real estate segment.

“After the subprime crisis, we were managing recovery,” he says. “We managed it correctly and we rapidly became number one in Europe in real estate finance.”

He moved to be head of investment banking in 2016 and then head of global markets in March 2020, just as the Covid-19 pandemic and related restrictions were causing turmoil on financial markets.

In his current role, Mr Kallala leads Natixis CIB, part of the global financial services division of Groupe BPCE, and which also includes asset management activities. The group also has a significant insurance and retail banking business in France via its two major networks, Banque Populaire and Caisse d’Epargne.

Mr Kallala believes that BPCE’s roots in regional French banking keep it close to clients and the communities it serves. “We are not only a global actor, but we also support local businesses and economies, and millions of small businesses,” he says. “We prefer not to offer our clients products that are too risky. We need to be not only profitable, but responsible.”

This strategy — which he says is proving effective, particularly in volatile economic contexts — was adjusted two years ago by Nicolas Namias, BPCE’s new CEO.

Business strategy

Natixis CIB provides advisory, investment banking, financing, corporate banking and capital markets services, and has 6500 employees in nearly 30 countries, with 55% of its revenue coming from outside France. Last year, it posted underlying net banking income of €3.76bn and a pre-tax income of €986m. It was particularly active in the long-maturity bond market, as a co-lead on several deals in France, including a €2.2m issue by industrial group Bouygues.

Its business-line strategy leads it to focus on segments in which it can maintain a position in the top five or 10 in a market, on the basis that only the leading banks can maintain profitability through a financial cycle. As a result, Mr Kallala says, besides taking top spot in European real estate, the bank ranks third in Europe for leveraged finance, second in the US in mid-market private debt servicing, and in the top five for infrastructure finance globally.

“This business model needs two things: a very deep understanding of the way we allocate our financial resources and the allocation of our talented people; and monitoring the balance between the difference business lines on a daily basis,” he explains. “It’s very simple: we are a talent-driven house. We focus on talent-driven products only. We don’t try to compete on balance sheet-driven products — we leave that business to other banks.”

Natixis CIB’s strategy calls for a mix of M&A-focused work, which flourishes when interest rates are low and there is a stable macroeconomic environment; and flow business, such as interest rate swaps and foreign exchange, which becomes considerably more profitable and useful for clients in more volatile periods.

Embedded innovation

Another key aspect of Natixis CIB’s business-line strategy is to be an early mover in fast-growing areas in which it can build a leading position. Early in the past decade, Natixis CIB moved into mid-market debt financing in the US, spotting the opportunity as private equity grew, driven by the likes of Apollo Partners and Cerberus Capital Management that were highly liquid, but treated with some caution by many traditional investment banks.

“I joined the bank because it has always been built on innovation and entrepreneurship,” says Mr Kallala. “If your balance sheet is not your main argument, you need to be innovative and build on your entrepreneurial mindset. When you’re innovative, you gather market share.”

An example, he says, is the energy transition and green financing. Natixis CIB set up a “green and sustainable hub” in 2016, which provides environmental, social and governance (ESG) advice and sustainable funding and investment offerings to clients, as well as playing a key role in its own energy transition and the greening of its investment portfolio.

Following the hub’s launch, Natixis CIB became increasingly active in the market for green instruments including bonds and derivatives, and its market share in the segment grew to several times its position in the broader banking market. In addition, Natixis CIB was one of the first banks to measure its own impact on the climate and is committed to “aligning its financing portfolio with a carbon neutrality path” by 2050 in line with the Net-Zero Banking Alliance’s recommendations.

“We want to stay at the vanguard,” says Mr Kallala. “We’re advising clients on M&A [and] what kind of businesses you should buy to meet ESG standards. The focus is to help ease energy transition within the market, as it can’t only be imposed and subsidised by the government.”

To this end, central to Natixis CIB’s approach is helping clients such as solar and wind farm developers and electric vehicle manufacturers build business models and hedging arrangements that are more investable.

Mr Kallala highlights Natixis CIB’s relationship with Saudi Arabian renewables company ACWA Power; the bank was one of the first to start financing ACWA, and in 2021 was joint global coordinator, financial advisor, bookrunner and underwriter for the company’s $1.2bn initial public offering (IPO). In December of the same year, Natixis CIB inked a $2bn memorandum of understanding to finance ACWA projects.

Some investors have moved away from fossil fuel companies altogether, whereas others have quietly shed their ESG credentials as commodity prices have risen. But Mr Kallala emphasises Natixis CIB’s willingness to keep backing oil and gas businesses as part of an evolving, ever-greener energy mix — and the importance of communicating this transparently, rather than “greenwashing”.

“As long as you and I need gasoline to drive our cars, there is a need to continue financing oil companies,” he says. “But what we are doing is only financing clients that are transitioning; either fully renewable energy companies or those in fossil energy but who are transitioning. Oil companies in 10–20 years will become power companies, and most of that power will come from renewable energy rather than oil and gas. I’m not saying we’re going to stop financing oil and gas, but we are moving the mix while reducing the carbon intensity on the balance sheet on a daily basis.”

Natixis CIB financed France’s first commercial-scale offshore wind farm, which became operational last year. The bank is also financing and acting as mandated lead arranger, documentation bank and hedging bank on Provence Grand Large, France’s first floating wind project. In 2022 it also agreed a €300m credit line with leading French energy company EDF, indexed on climate and biodiversity benchmarks, and managed the IPOs of two green hydrogen producers.

Other key ESG-driven deals led by Natixis CIB include a €750m green bond issue enabling Banque Populaire to refinance its assets in sustainable agriculture, and Sanofi’s first bond issue indexed on sustainable development, totalling €650m.

Boutique approach

Following its broader strategy of focus in specific business areas, Natixis CIB has developed an innovative ‘multi-boutique’ approach to deal advisory in recent years, acquiring an array of international M&A boutiques that build its capacity in various niches.

Acquisitions include UK financial services M&A specialist Fenchurch Advisory; Vermillion Partners, which concentrates on Chinese cross-border deals; Azure Capital, an Australian advisor with a traditional capacity in metals, mining and natural resources; and Solomon Partners, a US boutique with particular expertise in retail and consumer products. Natixis CIB also has capabilities in the French market under the brand Natixis Partners, and a minority stake in Clipperton, a French technology specialist.

“We are the only investment bank with a multi-boutique M&A strategy,” says Mr Kallala. “We acquired M&A boutiques that were profitable on their own, without balance sheets. They have exactly the culture, talented people and ideas we want to partner with. We are working with them to create synergies and cross-selling opportunities with the rest of the bank, while they maintain their core competencies.”

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