November 13, 2013 / 1:06 PM / 4 years ago

UPDATE 4-Natixis parent BPCE to cut costs in bid to double profit

5 Min Read

* Focus on cost cuts, cross-selling within group

* Natixis ROE target of 12 pct by 2017

* First of big French banks to outline new strategy

* Plans IPO of Coface unit in first half of 2014 -CEO (Adds Coface IPO plan)

By Lionel Laurent and Matthias Blamont

PARIS, Nov 13 (Reuters) - BPCE, parent of French investment bank Natixis, said it aims to nearly double its annual net profit by 2017 under a strategic plan designed to offset a weak economy and tougher regulation.

Confirming what sources with knowledge of the strategy had told Reuters on Nov. 8, BPCE said the plan will include 900 million euros in cost cuts over the next four years.

The project set out by Chief Executive Francois Perol - parachuted in by former President Nicolas Sarkozy to prevent Natixis collapsing during the financial crisis - also envisages 870 million in extra revenue from cross-selling products.

The lender told a news conference it expects those targets will enable it to lift net profit to more than 4 billion euros ($5.4 billion) by 2017, from 2.15 billion last year, excluding any revaluation of its own debt.

Asset sales may also be on the cards: the bank plans to list its credit-insurance subsidiary Coface on the stock market in the first half of 2014 "if market conditions allow", Perol told Reuters by telephone.

Retail-focused BPCE is the first of France's big banks to give a strategic plan in the wake of the euro zone crisis and tougher curbs on risk-taking under the Basel III regime.

The bank is looking to further integrate Natixis into its network of 8,000 branches across France - partly by selling Natixis insurance products - while at the same time cutting hundreds of jobs across several investment-banking lines.

BPCE said Natixis would have a return on equity (ROE) of 12 percent from its core businesses by 2017 and derive more than half of its core revenue from markets outside France.

Natixis said in a separate statement it expected to achieve net revenue of more than 8 billion euros from its three core businesses in 2017 - compared with a pro forma net revenue of 6.94 billion in 2012 - and would bring down its cost-to-income ratio to around 65 percent versus 71.2 percent in 2012.

It also projected a Basel III core Tier 1 ratio of between 9.5 and 10.5 percent, versus 9.9 percent as of Sept. 30, 2013, and a return on tangible equity - which strips out intangible assets such as goodwill - of between 11.5 and 13 percent, up from 8.5 percent last year.

Natixis also said it was aiming for 75 billion euros in new net inflows by the end of 2017, mainly generated in international markets.

The bank is due to present its strategy to investors on Thursday.

Capital Base

Larger rival Societe Generale, which itself is in the early stages of a multi-year cost-cutting plan, has said it is targeting an ROE of 10 percent at end-2015.

BPCE said it aimed to strengthen its capital base while boosting profits, with a core Tier 1 ratio target of above 12 percent by end-2017. Its liquidity coverage ratio - which tracks banks' ability to survive market shocks of up to a month unaided - is expected to be above 100 percent by January 2015.

Despite replenishing their balance sheets for years after the crisis, French banks and peers across Europe remain under pressure to find new ways of doing business as new global legislation curbs risk-taking and ramps up costs.

Rivals BNP Paribas, Societe Generale and Credit Agricole are all due to present new strategic plans in 2014. SocGen and Credit Agricole last week announced an asset swap designed to help narrow their business focus.

The fragile outlook for French banks' home market, where unemployment is stuck at 11 percent, was reinforced on Friday when ratings agency Standard & Poor's cut France's sovereign credit rating by one notch to AA from AA+.

Under the leadership of Perol, Natixis has slashed its balance sheet and focused more on earning fees from stock and debt issuance than risky trading.

Unlisted BPCE has already taken steps to better integrate Natixis, putting the listed subsidiary in control of the group's insurance business, and sources told Reuters it would work on developing products to cross-sell with BPCE.

However, despite restructuring efforts which have boosted the bank's capital strength and driven Natixis shares up more than 100 percent this year, some analysts say cost cuts are needed in investment banking and asset management to improve returns.

Natixis has already laid out plans to cut 700 jobs across several investment banking business lines. ($1 = 0.7442 euros) (Editing by Susan Fenton, David Holmes and David Evans)

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