BNP Paribas SA (BNP), France’s biggest bank, is seeking a rebound at its corporate and investment bank as it sets out three-year growth plans amid signs Europe’s economy is recovering.
BNP Paribas said it’s targeting annual revenue growth of more than 6 percent at the division through 2016, from 8.7 billion euros last year, the lowest since 2008. The Paris-based bank, which trimmed risk-weighted assets during the 2011-2012 sovereign-debt crisis, now eyes a “moderate increase,” it said in an investor presentation.
“Our first priority is a bank working for its customers,” Chief Executive Officer Jean-Laurent Bonnafe told journalists in Paris. “No divestments are to be expected.”
The bank aims to boost earnings per share by at least 12 percent through 2016, excluding exceptional items. BNP Paribas also said it’s seeking more than 8 percent average annual growth in pretax profit in its biggest European markets over the next three years, and predicts provisions for bad loans at its Italian branch network will fall next year and in 2016.
Bonnafe, who took over BNP’s top job at the end of 2011 after overseeing acquisitions in Italy, Belgium and Luxembourg, has bolstered capital levels faster than Societe Generale SA (GLE) and Deutsche Bank AG to adjust to stricter rules and benefit from Europe’s nascent recovery. In 2013, BNP was again up for acquisitions to expand in consumer banking outside of France.
BNP Paribas agreed in November to buy the rest of its Belgian consumer-banking unit and three weeks later to purchase Rabobank Groep’s Polish division. Bonnafe, 52, also announced plans last year to increase revenue in Asia, Germany and in online banking and asset management.
BNP Paribas shares declined 1.8 percent to 55.94 euros in Paris trading, trimming the gain over the past 12 months to 36 percent. The Bloomberg Europe Banks and Financial Services Index rose 18 percent over the same period.
The bank aims to boost its return on equity, a key measure of profitability, to at least 10 percent by 2016 from 7.7 percent last year, while paying dividends of about 45 percent of earnings. Societe Generale, France’s second-largest bank by market value, is aiming for an ROE of 10 percent by the end of next year.
BNP Paribas, thanks to its earnings capacity, could generate about 10 billion euros in excess capital by 2016, Cyril Meilland, a Paris-based analyst at Kepler Cheuvreux who recommends buying the stock, said in an interview ahead of the presentation. “The question is how are they going to use it. Will it be for acquisitions?” Meilland said.
BNP Paribas will use about 25 percent of its cumulative net earnings through 2016 to finance “organic growth,” as it foresees risk-weighted assets rising at least 3 percent per year, Chief Operating Officer Philippe Bordenave told investors. BNP Paribas may also seek “bolt-on” acquisitions and be “very opportunistic” on share buybacks, Bordenave said.
BNP Paribas last month said it targets 2016 revenue at least 10 percent higher than last year, excluding purchases. Full-year sales in 2013 were 38.8 billion euros, a 0.6 percent decline from the previous year.
BNP Paribas’s fourth-quarter profit fell 76 percent to 127 million euros, the lowest result since the fourth quarter of 2008 and below analysts’ estimates, after setting aside $1.1 billion tied to a review of payments to parties subject to U.S. sanctions. BNP declined to comment on the case today.
European and U.S. banks from Deutsche Bank to JPMorgan Chase & Co. have faced mounting legal bills as regulators and governments tighten their oversight and crack down on misbehavior. JPMorgan, the biggest U.S. bank, agreed to more than $23 billion in legal settlements last year.
“The whole financial industry is looking to find a new model,” said Jacques-Pascal Porta, who helps manage more than 800 million euros at Ofi Gestion Privee in Paris.
Deutsche Bank this month joined JPMorgan and Citigroup Inc. in saying investment-banking revenue came under pressure in the first months of the year, which typically make the largest contribution to earnings. Clients are trading less as the Federal Reserve slows its monthly asset purchases and leaves bond investors preparing for rising interest rates. Some banks are facing pressure to raise pay as European Union curbs on variable compensation kick in this year.
BNP Paribas will ask investors at its May annual meeting to double a EU cap on bonuses that’s set to limit payouts to a maximum of 100 percent of fixed pay, Bonnafe said today. Societe Generale last week became the first among Europe’s leading investment banks to formally seek shareholder permission to pay bonuses’ amounting to twice bankers’ salaries.
While rivals such as Zurich-based UBS AG (UBSN) and Royal Bank of Scotland Group Plc are reducing parts of their capital markets businesses, BNP Paribas preserved its global “reach,” Alain Papiasse, head of corporate and investment bank, told investors on the webcast.
In the fixed income, currency and commodities business, the French bank aims to remain among the top five in Europe and top 10 globally, seeking annual revenue growth of more than 7 percent through 2016 “from a low base” last year, it said. BNP Paribas is also expanding its European equity derivatives franchise and last month agreed to purchase assets from RBS.
BNP Paribas aims to reach advisory and capital markets revenue above 6 billion euros in 2016, Papiasse said. That compares with 5.43 billion euros last year. BNP’s corporate and investment bank has achieved 1 billion euros in cost savings since 2010 and aims for additional cuts equal to 7 percent of the unit’s 2013 cost level, according to the presentation.
BNP Paribas is investing to bolster its investment banking operations in Asia and North America. In the Asia-Pacific region, BNP Paribas last year hired 400 people in investment banking and investment solutions, which includes asset management, private banking and insurance.
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