BNP Paribas Plans Cost Reductions as Fourth-Quarter Net FallsFabio Benedetti-Valentini
BNP Paribas SA, France’s largest bank, announced plans to reduce costs and boost its dividend after reporting a 33 percent decline in fourth-quarter profit.
BNP Paribas rose as much as 3.6 percent in Paris trading after saying it will trim its cost base by 2 billion euros ($2.7 billion) by 2015, with about half the savings at the consumer bank, and raise the payout to shareholders to 1.50 euros a share from 1.20 euros a year earlier.
Chief Executive Officer Jean-Laurent Bonnafe has been shrinking BNP’s balance sheet, boosting reserves and drawing in deposits to meet regulatory demands for bigger capital buffers and more stable funding. The bank has reached higher capital levels under Basel III rules than peers such as Societe Generale SA of Paris and Frankfurt-based Deutsche Bank AG.
While fourth-quarter results “slightly disappointed, the update on capital and the initial details of the business plan are encouraging,” Anke Reingen, an analyst at RBC Capital Markets, said in a note today. “Shares have underperformed the sector and French peers, but in our view should get credit for taking more action on costs and a better capital position.”
BNP shares rose 3.3 percent to 47.38 euros by 11:03 a.m. in Paris. After today’s advance the stock is up 11 percent this year, compared with a 9.2 percent gain in the Bloomberg Europe Banks and Financial Services Index of 40 companies.
Net income fell to 514 million euros in the fourth quarter, missing analysts’ estimates, as the bank booked 345 million euros of impairments, including a 298 million-euro goodwill writedown at its Rome-based Banca Nazionale del Lavoro unit.
Societe Generale, France’s second-largest bank by market value, reported yesterday a 476 million-euro fourth-quarter net loss after a goodwill writedown and 300 million euros of legal provisions. The bank plans a dividend of 45 cents a share after no payout the previous year.
Credit Agricole SA, France’s third-biggest bank, also said on Feb. 1 it will book 2.68 billion euros of fourth-quarter goodwill writedowns to reflect stricter rules and a worsening economy. The bank is scheduled to report earnings on Feb. 20.
The impairments follow the European Securities and Markets Authority’s call last month for improvements in disclosures after a review of 800 billion euros of goodwill assets at 235 companies in 23 countries across Europe. Goodwill is an accounting convention that represents the amount paid for an acquisition over and above the fair value of its net assets.
BNP Paribas also booked 286 million euros in costs from the revaluation of its own debt, compared with a 390 million-euro gain a year earlier. Banks book accounting charges or gains tied to the theoretical cost of buying back their own debt as market prices fluctuate.
The lender posted net income in the fourth quarter even as competitors such as Deutsche Bank, Barclays Plc, Societe Generale and UBS AG reported losses on reorganization costs and litigation expenses.
Pretax profit at BNP Paribas’s corporate and investment bank rose to 266 million euros from 46 million euros in the fourth quarter, short of analysts’ estimate of 524 million euros. The unit’s bad-loan provisions almost tripled to 206 million euros because of money set aside “for one specific loan,” the bank said, without giving further details.
BNP Paribas had “weak client business at the end of the year in capital markets,” it said on its website. Excluding the impact of 2011 losses from selling sovereign bonds, fixed-income revenue fell 4.8 percent in the fourth quarter from a year earlier while equities and advisory sales declined 21 percent, it said.
Securities firms have posted gains in revenue since European Central Bank President Mario Draghi’s July pledge to do “whatever it takes” to defend the euro boosted bond markets. BNP Paribas last year carried out most of an announced 1,400 corporate- and investment-banking job cuts and, by September, reduced the division’s risk-weighted assets by 45 billion euros.
In 2012, BNP Paribas also increased deposits from mid-size and large corporate clients by 18 percent to 55 billion euros. The company operates about 140 “business centers” in cities from Lisbon to Kiev to provide international firms with cash-management, lending and market advice. It has said collecting deposits is “at the heart” of its corporate banking strategy.
Deposit inflows help European lenders bolster liquidity as new international standards come into play. Global central bank chiefs last month gave lenders four more years to comply fully with liquidity rules. Banks in the European Union may need to meet the requirements before rivals in other parts of the world, according to a document obtained by Bloomberg.
BNP Paribas’s core Tier 1 capital ratio under Basel III rules reached 9.9 percent at the end of December, up from 9.5 percent three months earlier. Societe Generale yesterday confirmed that it intends to reach between 9 percent and 9.5 percent by the end of this year.
BNP employs about 8,000 people in the Asia-Pacific area at its corporate- and investment-banking and investment solutions businesses. It plans to hire about 1,300 people in the region over the next three years to work at these businesses, which should have annual revenue growth of 12 percent through 2016 in Asia, the bank said.
“We are in a process to invest a lot to modernize the group and to improve the efficiency quite dramatically,” said Bonnafe, 51, in an interview with Bloomberg Television.
BNL, BNP’s Italian retail bank, had fourth-quarter pretax earnings of 68 million euros, down 42 percent from a year earlier and below analysts’ estimates for 91 million euros. BNP Paribas, which acquired BNL in 2006 for 9 billion euros, took 283 million euros in bad-loan provisions at the unit, a 39 percent increase from a year earlier.
“The improvement of BNL’s profitability remains a question mark,” Cyril Meilland, an analyst at CA Cheuvreux in Paris, said in an interview before the earnings release. “Provision levels in Italy are probably going to remain high for several quarters.”
The Italian unit’s bad-loan provisions in the fourth-quarter represented about 24 percent of BNP Paribas’s total money set aside for doubtful loans. BNP also took the goodwill depreciation on BNL because of an expected increase in Bank of Italy’s capital requirements, with local common equity Tier 1 rising to 8 percent from 7 percent, the French bank said.
The increase in BNL’s bad-loan provisions is “nothing dramatic,” Bonnafe told Bloomberg Television. “BNL is to stay a profitable operation.”
BNP’s retail-banking pretax profit was 1.36 billion euros in the fourth quarter, up 2 percent from a year earlier, helped by rising earnings in markets including Turkey, according to the bank’s statement. Earnings at the French branch network fell to 377 million euros from 395 million euros a year earlier, while Belgian consumer-banking pretax profit dropped 8.3 percent to 144 million euros.