The Paris-based bank held talks with U.S. authorities in the first quarter and it “can’t be excluded” that penalties could be significantly larger than provisioned, it said today as it reported profit growth for the period of 5.2 percent.
“We know that Americans have no fear about levying multi-billion penalties on banks,” said Francois Chaulet, who helps manage 300 million euros at Montsegur Finance in Paris, including BNP stock. “The update from BNP is not reassuring.”
BNP is facing a fine of about $2 billion after an internal probe found it breached U.S. sanctions against Iran, the Wall Street Journal reported today citing people with knowledge of the matter that it didn’t identify.
European and U.S. banks have faced mounting legal bills as regulators and governments tighten their oversight and crack down on misbehavior. U.S. authorities have made similar agreements over alleged sanctions-busting with banks such as HSBC Holdings Plc, Barclays Plc (BARC) and ABN Amro Bank NV.
BNP fell as much as 4.8 percent in Paris trading, the most on an intraday basis since June 20 last year, and dropped 4 percent to 53.68 euros at 1:44 p.m. The shares have fallen 5.3 percent in 2014 compared with a gain of 2.5 percent for the 43-member Bloomberg Europe Banks & Financial Services Index.
BNP is also at risk of being criminally charged by U.S. and state prosecutors, a person familiar with the matter said, signaling authorities are taking a tougher approach as they seek to resolve probes. Credit Suisse Group AG may also face charges, the person said. Cesaltine Gregorio, a spokeswoman BNP in Paris, declined to comment.
The investigation into BNP focuses on dealings tied to Iran, Sudan and Cuba, a person with knowledge of the matter said in February, when the company reported the $1.1 billion provision.
Benjamin Lawsky, superintendent of New York’s Department of Financial Services, is considering possibilities such as seeking a deal that would terminate some BNP employees, claw back pay and temporarily suspend its ability to transfer money through New York on behalf of foreign clients, according to a person familiar with that matter who asked not to be named because a decision isn’t final. Lawsky isn’t planning to suspend BNP’s license, the person said.
Criminal charges are being considered against individual employees after BNP’s internal probe found transactions related to Iran were covered up by altering trades to remove coding that would identify origin, the Wall Street Journal said.
The largest such U.S. settlement was made when HSBC Holdings Plc (HSBA), Europe’s largest bank by market value, resolved investigations into whether it laundered funds of sanctioned nations including Iran and Sudan in 2012. It agreed to change business practices and paid $1.9 billion.
BNP said in 2011 that following discussions with U.S. authorities, it was reviewing operations to see if it has complied with sanction rules of the Office of Foreign Assets Control.
Federal Reserve spokeswoman Barbara Hagenbaugh declined to comment on the probes of BNP or Credit Suisse. The Office of the Comptroller of the Currency didn’t immediately respond to phone and e-mail messages after regular business hours yesterday.
BNP made the statement on U.S. litigation costs as it reported first-quarter profit that unexpectedly rose to 1.67 billion euros ($2.31 billion) from 1.59 billion euros a year earlier. Earnings beat the 1.44 billion-euro average estimate of eight analysts surveyed by Bloomberg.
“The inference is of heavier provisions for this litigation, but they should remain a very profitable bank in absolute terms,” said Jon Peace, a London-based analyst at Nomura Holdings Inc., who has a neutral rating on the stock.
Profit was boosted by a 156 million-euro drop in payments to minority shareholders after BNP bought out Belgium’s 25 percent stake in its Fortis unit for 3.25 billion euros.
Pretax profit at BNP’s corporate and investment bank, home of trading and corporate finance, fell 24 percent to 623 million euros from a year earlier, missing the 681 million-euro average estimate of five analysts. Fixed-income revenue dropped 22 percent, while equities and advisory revenue jumped 50 percent.
BNP follows competitors including Frankfurt-based Deutsche Bank AG, Credit Suisse Group AG of Zurich and New York-based JPMorgan Chase & Co. in reporting a slowdown in debt trading.
“The fixed-income part remains under pressure,” Karim Bertoni, who helps manage $3.3 billion at de Pury Pictet Turrettini & Co. in Geneva, said in a phone interview.
To contact the reporter on this story: Fabio Benedetti-Valentini in Paris at email@example.com