Natixis is seeking to sell its majority stake in under-fire H2O Asset Management, as the French investment bank looks to sever all ties with a controversial subsidiary that exposed weaknesses in its risk management.
The decision casts doubt over the future of the asset management firm, which Natixis had backed since its inception a decade ago.
Natixis has been repeatedly questioned about its H2O subsidiary ever since the Financial Times revealed in 2019 that it had put more than €1bn of investors’ money into illiquid bonds linked to Lars Windhorst, a controversial German financier.
The move by Natixis is part of a strategic reset by new chief executive, Nicolas Namias. He is seeking to cut costs, slash risk and restore confidence in its multi-boutique model, which takes majority stakes in smaller investment firms that continue to be run at arm’s length.
“I am taking decisions that put Natixis back on a positive trend,” Mr Namias told the Financial Times.
The bank said that H20 “will no longer be considered a strategic asset” and it is in discussions with the investment manager about unwinding the partnership. One option being explored is a progressive sale of Natixis’s 50.01 per cent stake in H20. Another is that H20 takes over the distribution of its own funds during a transition period until the end of next year.
H2O’s illiquid investments linked to Mr Windhorst prompted French regulators in August to force a six-week suspension on a series of its funds, an unprecedented intervention that ended last month. Even after reopening, significant proportions of investors’ funds are still trapped in illiquid “side pockets” hiving off the disputed bonds.
Several of France’s biggest life insurance firms, once the backbone of H2O’s domestic investor base, have halted new investments with the investment firm in recent weeks, with a number of them valuing the side-pockets at zero.
Natixis does not publicly disclose H20’s financial contribution to its business. According to analysts, this has slumped from €120m last year to just €7m in the third quarter.
H20’s assets under management have dropped from about €30bn at the start of the year to €20bn at the end of September, according to its website.
Despite the decision to cut ties with H2O, Mr Namias said he remained committed to Natixis’s multi-boutique model, which he said had shown its “resilience” through the pandemic. “We have reinforced our management of risk and compliance . . . the model is stronger today than it was one year ago”.
H20 did not immediately respond to a request for comment.
The ability of Natixis to manage risk has come under broader scrutiny due to a series of losses stemming from risky structured products and as companies hit by Covid-19 cancelled dividends earlier this year. After its second consecutive quarterly loss, Natixis replaced its CEO in August.
As it announced a €39m profit in the third quarter, Natixis said on Thursday it had re-evaluated its equities derivatives business and had decided to pull out of the riskiest products, following a similar move by French rival Société Générale.
The bank will aim for a recurring €350m of cost savings by the end of 2024, including from the derivatives overhaul. It has also closed a merger with La Banque Postale Asset Management, which lifts Natixis’s assets under management to more than €1tn.
Natixis’s share price has fallen more than 40 per cent this year, along with other European banks hit by the pandemic and low interest rates.