Thursday, July 17, 2008

Thing that stuns me - Natixis: French turds and raisins

Alejandro Valverde a pre-race favourite who rides for the Caisse d’Epargne cycling team in le Tour de France blew up on the mountain top finish into Hautacam. He is down more than 4 minutes – and his chance of emerging a winner of the tour is now low.

Group Caisse d’Epargne – the sponsor - is a collection of mutual savings banks in France. The mutuals however own majority control of an investment bank with a big asset management business. That investment bank is Natixis. It used to be called Natexis but it merged with Ixis (which used to be outright owned by mutuals) and changed its name. Ixis is an asset management business. Ixis has since changed its name to Natixis Global Asset Management. They also own a none-too-bad wealth management group in there – La Compagnie 1818.

The blow-up of Caisse D'Epargne's subsidiary cyclist cost 4 minutes. The blow up of their susbsidiary investment bank is somewhat more expensive.

The Natexis investment bank is very bad. It had most of its business in securitisation where they were the suckers at the end of many deals. They are one of the more spectacular blow ups of Europe.

Howeer Ixis has some very good businesses in it. Ixis got that way by using the profits of the mutuals (which could not be distributed) to buy lots of good asset managers (often at high prices). The fund managers it owns include Harris Associates (Oakmark Funds) and Loomis Sayles. Ixis is the largest funds management group that you have never heard of. It manages about 600 billion euro - almost a trillion dollars. Natixis is a large proprotion of the size of UBS.

The asset management businesses must spit off cash. They would generate capital even in this environment. But Natexis has blown it and all. Natixis is doing yet another big capital raise - this one for USD6 billion.

This all leads to what I call the French banking question: why do very well run regional banks with perfectly solid wealth management businesses insist on being bad investment banks? It all reminds me of the Munger view of turds mixed with raisins. They are still turds.

I guess this is also the UBS question. UBS took the best wealth management business on the planet and mixed it with an enormous pile of turds. Natixis is just more problematic and much cheaper...

Now does anyone have any idea how you separate turds and raisins?

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