Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.

Much like the resilient but slow-growing French economy, BNP Paribas' latest results show the bank often performs as a safe port when financial storms are brewing. But it's got to deliver on its promise to keep shrinking.

Off the Floor
Investors rewarded BNP's revenue jump and cost-cutting pledge
Source: Bloomberg

After a string of disappointing figures and warnings from big investment banks like Credit Suisse and Deutsche Bank, BNP -- the euro area's second-biggest lender after Spain's Banco Santander -- bucked the gloomy fourth-quarter trend with an 8 percent rise in investment-banking revenue, beating even most big U.S. banks. BNP's focus on equities and derivatives served it well and is promising for Societe Generale's results next week. 

Given the warning signs for the industry as a whole, from jittery financial markets to a meltdown in commodity prices, BNP is wisely trying to get ahead of the curve at a time when the industry is gearing up for a fresh cycle of job cuts and balance-sheet reduction. Its new target of 1 billion euros ($1.1 billion) in cost savings and an 8-point drop in its cost to income ratio by 2019 look good; specific promises to back down from "low-return activities" and "unproductive" exposures, and to further shift from voice to electronic trading, are also encouraging.

If successful, the bank would keep its edge against rivals that are relatively more dependent on volatile investment-banking businesses. Deutsche Bank is targeting a cost-income ratio of around 70 percent in 2018.

BNP's Beating Rivals
The French bank has a lower cost-income ratio at its investment bank than some big rivals
Source: Bloomberg

That doesn't mean the bank can rest on its laurels, though. Costs are stubbornly high. The investment bank's cost-to-income ratio of 75 percent may look better than at UBS and Deutsche Bank but it is well above management's pledge of 60 percent by 2016. The aftershocks of BNP's record $9 billion U.S. fine in 2014 are still clearly being felt: The bank said it had added 1,033 extra compliance staff in 2015.

But there's also a sense of déjà vu. The bank is only just now coming to the end of a previous odyssey to cut costs, a plan which has been hampered by a rise in operating and compliance expenses at both the investment bank and the group. To be sure, the U.S. fine is in the rear-view mirror, but the future is hardly going to be free of surprises.

Even the bank admits the exact magnitude and timing of fresh regulatory curbs and tougher restrictions on big global banks' balance sheets are still "uncertain." Given that it's also targeting revenue growth at the same time as cost reduction, it is effectively walking a tightrope: it wants to soak up the costs it can't control, cut those it can and reinvest to grow market share all at the same time. That's a tough act in any industry, let alone one that has been steadily shrinking for almost a decade.

Safe Harbor
BNP Paribas' Corporate and Investment Bank revenues grew while others' shrank

Investors like the news of the bank's plan and its dividend payout -- but the stock still trades at a price-to-book discount to peers and has a lower return-on-equity, a reflection of its need to keep shrinking to bolster its balance sheet. Execution risk means investors are right to be wary.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Lionel Laurent in London at

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Jennifer Ryan at