Feb. 20 (Bloomberg) -- BNP Paribas SA, France's largest bank, reported a 42 percent decline in fourth-quarter profit after writing down the value of securities hurt by worsening credit markets.

Net income fell to 1.01 billion euros ($1.47 billion) from 1.72 billion euros a year earlier, the Paris-based bank said in a statement today. The result matches the estimated earnings figures BNP Paribas released on Jan. 30.

BNP Paribas took 589 million euros of writedowns on leveraged loans and debt backed by bond insurers, and set aside 309 million euros linked to U.S. loans and securities. For 2007, the bank's 1.2 billion-euro costs related to the U.S. subprime crash were dwarfed by the more than $18 billion of markdowns by UBS AG, Europe's largest bank, and were less than those of French rivals Societe Generale SA and Credit Agricole SA.

``This shows the bank's strategy allows it to make it through a crisis,'' said Benoit de Broissia, who helps oversee $5.9 billion at Richelieu Finance in Paris and holds BNP Paribas. ``It came out better than its French and European counterparts.''

BNP Paribas fell 30 cents, or 0.5 percent, to 59.69 in Paris trading. The stock is down 20 percent this year, compared with a 16 percent decline in the 60-member Bloomberg Europe Banks and Financial Services Index.

Record Annual Profit

Rising U.S. subprime mortgage defaults led to more than $145 billion in writedowns and loan losses at the world's biggest financial companies. The banks may be facing as much as $203 billion in additional writedowns, largely because of a worsening bond insurance crisis, UBS analyst Philip Finch said last week.

BNP Paribas's full-year profit rose 7 percent to 7.8 billion euros, a record for a French bank.

The French company was one of the first banks publicly caught up in the credit market seizure in August when it froze three funds, saying it could no longer find prices for some of the securities they held. The funds later reopened.

BNP Paribas said its corporate and investment bank was profitable in every quarter of the year, making a pretax profit of 3.6 billion euros, down 9 percent from the previous year. Pretax profit at the division fell 65 percent to 343 million euros in the fourth quarter.

`Accident Without Precedent'

In the second half, when credit markets seized up, the securities unit earned 1.14 billion euros before tax, an amount exceeded only by U.S. investment banks Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc., according to figures from BNP.

``In 2008, I am confident that BNP Paribas should be able to outperform again,'' Chief Executive Officer Baudouin Prot said in an interview. The unit's aim in 2008 is to match 2007's 8.3 billion-euro revenue, he said.

Societe Generale reported 2.05 billion euros of subprime- related writedowns last month and said unauthorized trades cost it an additional 4.9 billion euros, the largest trading loss in banking history. Profit for 2007 fell to 947 million euros from 5.2 billion euros in 2006, and its investment bank lost money.

BNP Paribas may consider a bid for Paris-based Societe Generale, a spokesman said last month. Credit Agricole has also hired investment banks to examine a possible offer.

``Societe Generale is a big actor that's just had an accident without precedent,'' Prot said. ``Its consequences aren't clear and I won't add to the rumor mill.''

Acquisition Risk

The possibility that BNP might bid for Societe Generale will hold back its share price, said Kian Abouhossein, an analyst at JPMorgan Chase & Co. BNP Paribas ``is attractive on valuation with limited exposures to subprime related assets,'' Abouhossein said in a note to clients. Still, the bank ``is seen as an acquirer and hence will trade at a lower valuation.''

Credit Agricole announced in December writedowns and provisions that will cut 2007 earnings by 1.6 billion euros. That follows writedowns of 850 million euros in the first three quarters of 2007. Its investment bank also lost money last year.

In France, BNP Paribas said its retail banking network met a target of increasing revenue 4 percent a year. The bank said 10 percent of sales should be over the Internet by 2010. Pretax income from French retail banking rose 5 percent last year to 1.67 billion euros.

Lending rose 11.6 percent in the fourth quarter. ``There's never been a credit crunch at BNP Paribas and there won't be,'' Prot said at a press conference.

Expansion Outside France

Pretax profit at BNL, the bank's Italian unit, rose 45 percent to 566 million euros. BNP Paribas said it plans to complete the renovation of all BNL branches and open 100 more, and aims to increase revenue 6 percent a year.

Pretax profit from consumer banking outside France and Italy fell 11 percent to 2.28 billion euros last year, hurt by writedowns at its U.S. BancWest unit.

BNP Paribas's goal is to double revenue in emerging economies in three years to reach 15 percent of the group's total. It plans to focus on Eastern Europe, the Mediterranean basin, Brazil, India and China, and expects to open 600 new branches overseas to bring the total to 2,600.

BNP also set a target for its asset management operations to increase both funds under management and operating income by 10 percent a year.

To contact the reporter on this story: Gregory Viscusi in Paris at gviscusi@Bloomberg.net.

Last Updated: February 20, 2008 12:05 EST