Natixis announced that it will receive a guarantee from its parent BPCE, covering about €35 billion($50.2 billion) of its most risky segregated assets.
Moody’s Investors Service analysts said minority shareholders are poised to benefit most from the guarantee scheme arrangement.
The arrangement also offers a clever way to avoid additional European Union scrutiny, which would not be the case if the aid came from the state.
Financial guarantees granted by governments across Europe on some banks’ portfolios have had the objective of protecting against potential credit losses.
The purpose of the BPCE guarantee, however, is principally to eliminate 85% of the negative effects on Natixis’ results of the mark-to-market volatility of certain assets via a total return swap. Natixis will retain 15% of the exposure on portfolio losses.
By removing the bulk of future mark-to-market losses stemming from Natixis’ legacy portfolio, the guarantee will help achieve the bank’s stated goal of returning to profit from 2H09, after five consecutive quarterly losses.
As a result, a €831 million deferred tax recognition could be activated, enabling Natixis to post a narrower 2Q09 net loss (€883 million) than in 1Q09 (€1.8 billion). Additionally, the guarantee will boost Natixis’ Tier 1 ratio by 150 basis points (to a pro-forma of 9.4% at the end of June 2009) thanks to the deconsolidation of approximately €16 billion of weighted assets.
The agreement will also eliminate the risk of another dilution for Natixis’ minority shareholders.
The agreement has no effect on the ratings of Natixis and BPCE, which already incorporate the expectation of further impairments, including within the guaranteed portfolio. But Moody's analysts said that its trickier to assess the impact of gurantee on BPCE.
“Since Natixis is already fully consolidated by and affiliated to BPCE, the guarantee does not represent a real transfer of risk in our view,” Moody’s analysts said. “BPCE is expected by law to provide liquidity and solvency assistance to its affiliated members. As such, Natixis benefits from the strong solidarity and cross-guarantee mechanism existing within the group. Hence, we merely view this formal guarantee as additional evidence of the strategic importance of Natixis for BPCE.”
