BNP Said to Mull Plan for $50 Billion Spain-Italy Funding

BNP Said to Mull Plan for EU40 Billion Spain, Italy Funding Gap
A BNP Paribas bank branch in Parisr. Photographer: Fabrice Dimier/Bloomberg

BNP Paribas SA, France’s largest bank, may narrow a 40 billion-euro ($50 billion) funding gap in Spain and Italy by moving some loans in those countries to deposit-rich Belgium, three people with knowledge of the matter said.

The bank is seeking to tighten the mismatch of loans and deposits in European countries by the transfer of export-lending and project-finance portfolios to Belgium, the people said, citing Chief Financial Officer Lars Machenil at a meeting last month in Paris. The bank also studied moving commodities-finance assets to Switzerland, they said, declining to be identified because the discussions aren’t public.

“It isn’t easy to lend to Spanish companies without having enough deposits locally,” said Christophe Nijdam, an analyst at AlphaValue in Paris. “That’s why they’d look for funding elsewhere.”

BNP Paribas is looking to address funding concerns in Spain and Italy, where the Paris-based bank’s loans outweighing deposits was among reasons cited by Moody’s Investors Service for downgrading its credit rating last month. Transfers of loans from elsewhere to Belgium might be capped at 20 billion euros and at 10 billion Swiss francs ($10.4 billion) to Switzerland, according to one of the people.

BNP Paribas, like other lenders in Europe, is trying to match assets and liabilities on a country basis as local bank supervisors try to “trap” more capital and funding at a national level, Morgan Stanley analysts including London-based Huw Van Steenis wrote in a report on June 26.

Pulling Back

The four largest banks in France provide 150 billion euros of parent funding for their European peripheral activities, the report said. By transferring export-finance operations from Spain and Italy to Belgium -- with its deposit surplus -- BNP Paribas would be able to cut its parent funding.

The bank’s shares rose as much as 5.5 percent and were 3.9 percent higher at 31.53 euros as of 5:16 p.m. in Paris.

BNP Paribas spokesman Pascal Henisse declined to comment on remarks made by CFO Machenil and on the 20 billion-euro estimate for the bank’s funding shortfall in Spain, which two of the people said almost matched the lender’s figure for Italy.

Henisse said in an e-mailed response to questions that retail banking in Belgium, conducted through BNP Paribas’s Fortis Bank SA/NV unit, already includes operations from Luxembourg, Poland, Turkey and some specialized business.

“As part of its daily treasury activities Fortis Bank is engaged in short-term lending and borrowing activities with BNP Paribas group,” he said. Fortis Bank’s net liquidity to its parent is “very limited,” and was less than 1 billion euros at the end of last year, he said.

Funding Surplus

The attempt to back loans with deposits comes as Europe’s almost three-year-old debt crisis gums up euro-area banks’ efforts to finance operations. BNP Paribas, which has cut its sovereign debt holdings in the region’s troubled countries, is now seeking to shrink cross-border funding of private loans in those countries.

The bank, which took 3.2 billion euros in writedowns on Greek government debt last year, has rushed to cut its sovereign-debt holdings in most European countries except Belgium since mid-2011 to help protect capital levels.

It cut its Italian government debt holdings by 43 percent to 11.6 billion euros in the 10 months through April 30.

While as a group BNP Paribas says it has a funding surplus, the bank has shortfalls between loans and deposits in some of its main countries.

Italian Aid

At the end of March, BNP Paribas had a 51 billion-euro surplus of stable funding on its cash balance sheet, helped by rising medium- and long-term funding resources, according to its website. Based on BNP Paribas figures, customer loans equaled 116 percent of client deposits, according to its May 4 results.

The French bank’s crossborder funding to its Italian unit Banca Nazionale del Lavoro is down to 20 billion euros from about 30 billion euros at the end of 2010, Chief Operating Officer Francois Villeroy de Galhau said in a June 22 interview. The bank plans to keep cutting the funding exposure “by developing BNL’s own financings,” Villeroy said.

BNL’s commercial-banking loans exceeded deposits by 39.1 billion euros at the end of March, BNP’s website shows.

No aggregate data are available for BNP’s loans and deposits in Spain, where the lender doesn’t operate a consumer-banking network.

Belgian Position

Meanwhile, BNP’s Belgian consumer-banking network had deposits exceeding loans by 15.5 billion euros at the end of March, according to its website.

BNP Paribas, which bought Fortis’s bank assets in Belgium and Luxembourg in 2009, set up a corporate- and investment- banking hub in Brussels for European structured finance, serving Benelux, Northern Central Europe, Greece and Turkey for corporate acquisition finance, export finance and project finance, according to a Dec. 1, 2009 presentation to investors.

Brussels is home to BNP Paribas’s center for overseeing “particular banking services at a European or global level for both large and midsized international companies in their daily banking activities,” the bank said Feb. 10, 2011 as it unveiled “One Bank for Corporates in Europe.” The program provides services to 160,000 European firms at 150 business centers in 23 nations including France, Belgium, Italy, Spain and Switzerland.

Italy, Spain

BNP Paribas’s corporate-banking European services such as cash management and trade finance are housed in Brussels. The bank’s Belgian consumer-banking unit is the country’s largest bank by deposits.

In Italy, BNP Paribas acquired BNL in 2006 for 9 billion euros and it has more than 1,000 outlets. The bank helps Italian companies operating abroad with services such as cash management, trade finance and lending through “Italian desks” active in BNP’s units in other countries.

In Spain, BNP Paribas’s corporate- and investment-banking unit has 340 employees in Madrid, Barcelona, A Coruna, Bilbao and Valencia and 15 billion euros of assets, according to a Spanish presentation on the bank’s website.

Among its Spanish activities, BNP also has a car-fleets leasing operation, a private-banking business and owns 50 percent of mortgage-lender UCI, a venture with Banco Santander SA. UCI manages 11.8 billion euros in assets, the bank said.

Rating Cut

BNP Paribas was among 15 global banks -- including French rivals Credit Agricole SA and Societe Generale SA -- downgraded by Moody’s on June 21. Moody’s action on BNP Paribas was partly prompted by funding needs at the bank’s Rome-based unit BNL.

“Over time BNL may be required to reduce its use of parental funding, which may in turn create pressure to reduce its balance sheet,” the ratings company said.

At the end of 2011, BNL borrowed 5.2 billion euros from the European Central Bank in its three-year loan program at 1 percent, according to BNL’s financial statements. BNP Paribas declined to give details on BNL’s use of a second round of long-term funds the ECB provided to the region’s lenders in February.

BNL had 32.2 billion euros of deposits at the end of March, 1.6 percent higher than a year earlier, BNP Paribas said May 4. Loans at the Italian retail-banking unit were at 71.3 billion euros by the end of the first quarter, almost unchanged from a year earlier, it said.

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