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BNP Says Deleveraging at an End as Deutsche Bank Prepares Cuts

BNP Says Deleveraging at an End as Deutsche Bank Prepares Cuts
BNP Paribas shares climbed to a two-year high in Paris. Photographer: Balint Porneczi/Bloomberg

Aug. 1 (Bloomberg) -- BNP Paribas SA, France’s largest bank, said it already meets more stringent global standards on leverage and doesn’t plan further asset cuts, a day after Deutsche Bank AG and Barclays Plc announced plans to shrink.

“Deleveraging has been done,” Jean-Laurent Bonnafe, BNP Paribas’s chief executive officer, told journalists in Paris yesterday after reporting second-quarter profit that beat analysts’ estimates. He ruled out a new asset-cutting program. BNP Paribas shares climbed to a two-year high in Paris.

“They appear to have done a pretty good job,” said Julian Chillingworth, who helps manage 20 billion pounds ($30.4 billion) at Rathbone Brothers Plc in London and holds BNP shares. “You would expect the stock price to reflect that.”

Europe’s banks have been cutting risky assets and building up capital to meet tougher rules from regulators seeking to avoid a repeat of the taxpayer-funded rescues of 2008. Global supervisors are paying increasing attention to banks’ equity as a proportion of total assets, known as the leverage ratio, because it excludes risk-weightings that can vary between banks.

BNP Paribas’s leverage ratio was 3.4 percent under fully applied Basel III rules at the end of June, above the 3 percent level proposed by global regulators for the start of 2018, the bank said yesterday. While providing its leverage ratio for the first time, BNP still considers risk-weighted measures “more appropriate,” Bonnafe said.

Expansion Plans

The bank’s common equity Tier 1 capital ratio under Basel III standards rose to 10.4 percent of assets weighted according to risk at the end of June from 10 percent three months earlier, the bank said.

BNP doesn’t need “anything else” to boost solvency as “the normal accumulation of capital will keep improving things progressively,” Chief Operating Officer Philippe Bordenave said in a Bloomberg Television interview.

BNP Paribas’s assets amounted to about 1.86 trillion euros ($2.5 trillion) at the end of June, down from 2.24 trillion euros three years earlier, figures from the Paris-based company show. The firm first reduced its balance sheet following the purchase of Fortis units in 2009, and made further cuts over the past two years, mostly by shrinking the corporate and investment bank, said Bonnafe, 52.

With its slimming completed, the lender plans an expansion in Germany and Asia. It intends to increase staff by 500 people across its businesses in Germany, where it employs about 3,500, and to boost revenue there by 8 percent annually to reach 1.5 billion euros by 2016, it said yesterday. Last week, BNP acquired for an undisclosed price a unit of Frankfurt-based Commerzbank AG that settles securities transactions and administers funds.

Deutsche, Barclays

The French bank said in February it plans to hire about 1,300 people over three years at its corporate- and investment-banking and investment-solutions businesses in the Asia-Pacific region. The firm, which currently employs about 8,000 people in those activities in the region, foresees annual revenue growth of 12 percent through 2016 in Asia.

Deutsche Bank of Frankfurt and London-based Barclays pledged this week to further reduce their balance sheets to increase capital ratios and trim leverage.

Germany’s largest bank said July 30 it will cut its balance sheet by 250 billion euros, while Barclays, the No. 2 U.K. bank by assets, announced plans to reduce leverage by raising 5.8 billion pounds in a rights offer, cutting as much as 80 billion pounds of assets and selling 2 billion pounds of loss-absorbing securities.

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;

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