Tuesday, February 22, 2011

Natixis Shares Slump After Disappointing Results

By Elena Berton

Natixis shares dropped sharply in early trade Wednesday as the lender’s third-quarter results, which missed expectations, failed to offset the French bank’s upbeat comments about complying with new banking rules without the need to raise fresh capital.

The stock recently traded down 7%, or €0.30, at €4.17, underperforming the CAC-40 Index, which was down 0.5%. It was the hardest faller among European financial stocks.

Natixis late Tuesday said net profit declined 16% to €305 million in the third quarter due to charges related to the changing value of its own debt. Revenue in the period was down 4%.

Turning to its forecasts for new international banking rules, known as Basel III, the bank said it expects its core Tier 1 ratio–a key measure of capital strength–to be more than 7% on Jan. 1, 2013, without raising cash.

Nomura analyst Jon Peace said that while the operating performance missed expectations, the comments on
capital levels offered reassurance. However, he said the lender’s core Tier 1 ratio is “still well below peers,” pointing out that the stock’s premium valuation will be difficult to sustain.

Credit Suisse analysts said in a note to clients that they see little upside at present due to Natixis’s high valuation. “This is expensive in a French context,” they said, maintaining their neutral recommendation.

Credit Suisse also said Natixis’s Basel III disclosure is triggering short-term uncertainties about Credit Agricole SA, which is due to report third-quarter earnings Wednesday after the market closes.

The announcement that the stake held in Natixis’s parent, Groupe BPCE, will be weighted at 370% in order to comply with the new rules, suggests that Credit Agricole will have a similar treatment, leading to a likely increase in risk-weighted assets of €48 billion, the analysts said.

Credit Agricole was recently trading down 2.4%, or €0.29, at €11.94.

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