BNP Paribas Quarterly Net Falls 4.7% on Loan ProvisionsFabio Benedetti-Valentini
BNP Paribas SA, the largest French bank, said second-quarter profit fell 4.7 percent as Europe’s economic slump led to an increase in loan-loss provisions.
Net income declined to 1.76 billion euros ($2.3 billion) from 1.85 billion euros a year earlier, the Paris-based bank said in a statement today. Earnings compare with the 1.62 billion-euro average estimate of six analysts surveyed by Bloomberg. Revenue slid 1.8 percent to 9.92 billion euros, while operating expenses declined 0.7 percent.
BNP Paribas, headed by Chief Executive Officer Jean-Laurent Bonnafe, is expanding in Germany and Asia while the economic downturn in its main European markets weighs on growth. While provisions for doubtful loans jumped 30 percent to 1.1 billion euros, the bank also boosted capital and said its leverage ratio -- or equity as a proportion of total assets -- was above the threshold set by global regulators.
“Despite an historic economic crisis, the house is in order,” said Cyril Meilland, a Paris-based analyst at Kepler Cheuvreux who recommends buying BNP Paribas shares. The leverage ratio level is “quite impressive,” he said.
BNP Paribas fell 0.8 percent to 47.48 euros by 9:39 a.m. in Paris trading, trimming the gain this year to 11 percent. Societe Generale SA, France’s No. 2 bank, which publishes earnings tomorrow, rose 6.3 percent this year.
BNP Paribas’s leverage ratio was 3.4 percent at the end of June, above the 3 percent level proposed by the Basel Committee on Banking Supervision the start of 2018, the bank said. BNP’s common equity Tier 1 ratio under fully-applied Basel III standards rose to 10.4 percent at the end of June from 10 percent three months earlier.
The French bank has “a rock-solid balance sheet, combining very high solvency and considerable liquidity reserves,” Bonnafe, 52, said in the statement.
The bank doesn’t need to take any additional steps to increase 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 plans to increase the workforce by 500 people across its businesses in Germany, where it employs about 3,500, to reach annual revenue of 1.5 billion euros by 2016, it said today. Last week, BNP acquired for an undisclosed price a unit of Frankfurt-based Commerzbank AG that settles securities transactions and administers funds.
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.
Pretax profit at BNP’s French retail-banking unit fell 2.2 percent to 536 million euros, the bank said. That beat the 479 million-euro average estimate of five analysts. Pretax profit at its Belgian branch network fell 2.4 percent to 161 million euros and pretax earnings at the Rome-based unit, BNL, fell 41 percent to 75 million euros as the country faces its longest recession in at least two decades.
Pretax earnings at BNP Paribas’s corporate and investment bank fell 39 percent to 497 million euros, missing analysts’ estimate of 688 million euros. BNP’s capital-markets revenues rose 4.1 percent from a year earlier as its equity-and-advisory sales jumped 23 percent “due in particular to the rise in transaction volumes and the good performance of structured products,” the bank said. Fixed-income trading revenue declined 4.3 percent as “the rates business was affected by the considerable volatility at the end of the quarter,” BNP said.
JPMorgan Chase & Co., Goldman Sachs Group Inc., Citigroup Inc., Bank of America Corp. and Morgan Stanley reported a cumulative 24 percent gain in revenue at their investment banks from the year-earlier quarter, excluding own debt valuations, according to data compiled by Bloomberg Industries.
President Francois Hollande’s government is prodding banks to lend more to help France emerge from a recession, while cutting them some slack on other fronts. French banks were spared a split of lucrative investment-banking activities as lawmakers passed a bill this month to segregate proprietary trading, the first such move in Europe. Also, new French regulations are giving the lenders a liquidity boost of 30 billion euros by letting them keep additional client deposits in tax-free accounts on the their balance sheets.
Loans at BNP’s French retail-banking unit declined 2.7 percent in the quarter while lending to small- and medium-sized firms rose 1.8 percent, the bank said.
France’s three largest banks cumulatively shrank risk-weighted assets by 128 billion euros last year to comply with international capital and liquidity requirements, while also cutting thousands of investment-banking jobs.
Some regulators are questioning the weightings banks use to determine their risk and capital levels and are embracing the leverage ratio. U.S. and some European banks, after years of building equity, may continue hoarding profits instead of boosting dividends as they face stricter capital rules.
Barclays Plc, the U.K.’s second-largest bank by assets, said yesterday it plans to raise 5.8 billion pounds ($8.8 billion) in a rights offering to bolster capital. Deutsche Bank AG, Germany’s largest bank, will cut assets by 250 billion euros “over time” to help reduce its leverage.