BNP Paribas Third-Quarter Net Slides 72% on Greek Writedown

BNP Paribas SA, France’s largest bank, said third-quarter profit fell 72 percent because of a 2.26 billion-euro ($3.1 billion) writedown on Greek sovereign debt and losses from selling European government bonds.

Net income declined to 541 million euros from 1.91 billion euros a year earlier, the Paris-based company said in a statement today. That missed the 1.24 billion-euro average estimate of 13 analysts surveyed by Bloomberg. The shares rose after the bank accelerated the reduction of its balance sheet by selling Italian and Spanish government debt.

“We very much reduced our exposure to sovereign debt,” Chief Executive Officer Baudouin Prot said in a Bloomberg Television interview. “We incurred losses for that.”

BNP Paribas said today it expects about 1.2 billion euros in losses from disposals and one-time costs as it speeds up asset cuts to comply with new capital rules. The bank, along with smaller French rival Societe Generale SA, is racing to shrink its balance sheet after the firm’s stock plunged and U.S. money-market funds became reluctant to lend to it in dollars, making it harder to refinance international businesses.

BNP Paribas (BNP) rose 1.68 euros, or 5.6 percent, to 31.36 euros at 11:46 a.m. in Paris trading, taking its decline this year to 34 percent. Societe Generale, France’s second-largest bank, has fallen 55 percent.

‘Holding the Line’

“BNP Paribas’s results are holding the line,” said Pierre Flabbee, a Paris-based analyst at Kepler Capital Markets who has a “buy” rating on the stock. The bank’s reduction in sovereign debt risks is “something investors like, as investors today are risk adverse,” he said.

The two lenders announced in September steps leading to trim a combined 300 billion euros of holdings by 2013. BNP Paribas has pledged to reduce its balance sheet by 10 percent, including cutting $82 billion in corporate- and investment- banking assets.

To help comply with new capital rules, BNP Paribas is accelerating the reduction of its trading book. In the third quarter, the lender trimmed $20 billion of corporate- and investment-banking U.S. dollar needs, mostly through cuts in capital-markets businesses, it said. The company said that in the fourth quarter it will reduce an additional $20 billion from the capital-markets and financing operations.

Capital Needs

French banks need to reinforce their capital by 8.8 billion euros, according to European Banking Authority tests released last week. BNP Paribas will have to bolster finances by 2.1 billion euros, while Societe Generale (GLE) needs 3.3 billion euros, according to the EBA figures. Both companies have said they won’t tap shareholders for new capital.

French Prime Minister Francois Fillon said yesterday he ordered the country’s banks to present detailed plans of how they intend to meet new capital targets by Dec. 15. He said the companies won’t need state support.

European Union leaders plan to solve the debt turmoil hit a bump this week when Greece’s government called a referendum on its latest bailout package, spurring concern that the country may default. EU leaders agreed Oct. 27 to bolster the region’s rescue fund, recapitalize banks and convince investors to cut Greece’s debt load to prevent contagion effects to Italy and Spain. Policy makers and bankers converged on a 50 percent writedown for Greece’s lenders.

European leaders yesterday cut off aid payments to Greece and said a referendum in five weeks will determine whether the debt-strapped nation becomes the first to exit the 17-country euro area.

Asset Cuts

BNP Paribas is booking losses as it reduces its European sovereign-debt holdings, including Spanish and Italian sovereign debt, to help make its capital level less dependent from fluctuations in government debt prices.

BNP Paribas posted 362 million euros of losses in the third quarter and about 450 million euros in October stemming from government bond sales, the bank said.

The company identified asset cuts that will represent a reduction a 750 million-euro reduction in gross operating income, or profit before provisions, it said.

BNP Paribas would be able to absorb more losses from its holdings of Greek sovereign debt, Prot said.

“We can certainly withstand another hit,” he said in a Bloomberg Television interview in Paris. “I hope this country will enact the agreement,” he said, referring to a new support package agreed on last week by European Union leaders.

‘Hostage’

“BNP Paribas remains hostage to the euro periphery,” Keefe, Bruyette & Woods Ltd. analyst Jean-Pierre Lambert said in a note to investors dated Nov. 1. “Other key issues for investors remain access to funding and the earnings impact of deleveraging.”

BNP Paribas, the largest foreign holder of Italian sovereign debt, reduced by 8.3 billion its banking-book holdings of debt from the euro area’s third-largest economy between the end of June and the end of October, the bank said today. The French firm cut its total banking-book sovereign debt portfolio by 23 percent to 81.5 billion euros in the same period.

BNP Paribas wrote down its Greek sovereign debt holdings by 60 percent at the end of September. The bank also booked a 786 million-euro pretax gain on its own debt in the period and a 299 million-euro writedown on its stake in insurer Axa SA.

BNP Paribas’s pretax profit at the corporate- and investment-banking division fell 50 percent to 641 million euros, less than the analysts’ average estimate of 833 million euros. Sales at the unit fell 40 percent to 1.75 billion euros as fixed-income revenue slid 63 percent, hurt by disposals of sovereign debt holdings, while equity-and-advisory sales plunged 44 percent.

Bonuses Reduced

Prot said bonuses at the business will have a “significant reduction” because of the earnings decline at the division.

“The bonus trend, like expected, should be in line with the trend of revenue and profit,” the CEO said in an interview with Bloomberg Television.

The bank also plans to announce “hundreds” of job cuts at the unit this month, Prot said on BFM Radio.

Investment-Banking Woes

The biggest Wall Street firms posted their worst quarter in trading and investment banking since the depths of the credit crunch. Deutsche Bank AG, Europe’s biggest investment bank, on Oct. 25 posted a decline in trading revenue for the third quarter.

JPMorgan Chase & Co. (JPM), Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley posted $13.5 billion in trading revenue minus accounting gains for the third quarter, down 35 percent from a year earlier. Investment-banking revenue plunged 41 percent from the second quarter to $4.47 billion.

BNP Paribas gets most of its revenue from France, Belgium, Luxembourg and Italy and the company also owns BancWest, a network of branches in the U.S. Through its purchase of Fortis in 2009, the lender also added clients in faster-growing economies such as Turkey and Poland.

Pretax profit at the consumer-banking business rose 23 percent to 1.51 billion euros, helped by higher deposits in France and in Belgium. Pretax profit at the French retail- banking network gained 13 percent to 466 million euros, while pretax earnings at BancWest increased to 188 million euros from 168 million euros a year earlier, the company said.

Total provisions for doubtful loans in the third quarter increased to 3.01 billion euros from 1.22 billion euros a year earlier, hurt by the writedown on Greek sovereign debt.

BNP Paribas’s Italian retail network, Banca Nazionale del Lavoro SpA, had 135 million euros in pretax profit, up 18 percent from a year earlier, the company said. The Europe- Mediterranean division, which includes consumer-banking networks in countries such as Turkey, Ukraine and Egypt, had a 48 million-euro pretax profit, compared with 8 million euros a year earlier, BNP Paribas said.

Pretax earnings at the investment-solutions unit, which includes asset management, private banking and insurance, fell 46 percent to 266 million euros.

To contact the reporter on this story: Fabio Benedetti-Valentini in Paris at fabiobv@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net; Edward Evans at eevans3@bloomberg.net

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