BNP Profit Rises, Beating Estimates, Buoyed by Debt Trading

  • French firm joins other banks benefiting from debt operations
  • Europe retail bank revenue flat; shares trade near 2016 high

BNP Paribas SA, France’s largest lender, reported third-quarter profit that beat analysts’ estimates as it benefited from a surge in fixed-income trading that has lifted bank earnings in Europe and the U.S.

Net income rose 3.3 percent to 1.89 billion euros ($2.06 billion) from 1.83 billion euros a year earlier, the Paris-based bank said Friday. That compares with the 1.69 billion-euro average estimate of eight analysts surveyed by Bloomberg. A 41 percent increase in debt-trading revenue buoyed earnings at its corporate and institutional banking division.

The shares slipped from Thursday’s high for the year as revenue from retail-banking activities in BNP’s key European markets, including France and Italy, was little changed. BNP Paribas has maintained its targets even as record-low interest rates are weighing on bank revenues across Europe, while stricter capital requirements are prompting rivals like Deutsche Bank AG and Barclays Plc to speed cost cuts.

“It was especially good in bond trading, and the capital level as well as overall profitability are satisfying,” said Lutz Roehmeyer, who helps manage $12 billion at Landesbank Berlin Investment and owns BNP shares. “Still, BNP is trading close to its highest of the year, there was already lots of optimism before the results, and today’s numbers appear more like a confirmation. Retail banking across Europe is not as appealing as other businesses because central-banking policy is compressing revenues.”

Capital Level

The shares fell 0.5 percent to 53.22 euros in Paris trading at 11 a.m. after closing at a 10-month high Thursday. The shares have risen 1.9 percent this year, outperforming the 17 percent decline by the Bloomberg Europe Banks and Financial Services Index. Deutsche Bank, which runs Europe’s biggest investment bank, is down 41 percent in 2016.

BNP’s common equity Tier 1 ratio, a measure of financial health, reached 11.4 percent as of the end of September, up from 11.1 percent on June 30, the bank said. The bank raised $485 million in August from a sale of a stake in its Honolulu-based unit First Hawaiian Inc. 

BNP’s return on equity was 9.8 percent in the first nine months of 2016, just below the 10 percent target this year set by Chief Executive Officer Jean-Laurent Bonnafe. Revenue rose 2.4 percent to 10.6 billion euros, more than the 10.2 billion-euro average analyst estimate.

Restructuring Costs

BNP’s third-quarter earnings included 455 million euros of one-time costs, almost half from its CIB restructuring, and up from 123 million euros a year earlier. Excluding the exceptional items, quarterly profit rose 15 percent.

“The results are solid, but the bank in 2017 needs to get ready for higher demands from regulators,” said Arnaud Scarpaci, who helps manage 300 million euros at Montaigne Capital in Paris and owns no BNP shares. “The trend is for cost cutting.”

Revenue at the CIB division, which houses trading, rose 13 percent in the quarter. BNP Paribas is seeking to lift profitability at its securities unit by shrinking some capital-intensive parts of the business and winning market share in others, like cash management for large firms. The bank in February set a target for annual CIB revenue growth of at least 4 percent through 2019.

Pretax profit at BNP’s securities unit rose 42 percent to 812 million euros, the bank said. The surge in bond-trading income was partially offset by a 15 percent decline in equity and prime services sales. Revenue from corporate financing rose 9.2 percent.

The U.K.’s surprise Brexit vote in June to exit the European Union and uncertainties over the outlook for global interest rates helped spur bond trading across the securities industry. The five top U.S. investment banks collectively saw a 49 percent revenue surge in that business. On Thursday, Barclays posted a 40 percent increase.

BNP’s French consumer-banking network had a 317 million-euro pretax profit, down 12 percent from a year earlier. Pretax earnings from its Italian consumer-banking unit, BNL, were 70 million euros, while profit from the Belgian branch network rose 8.1 percent, BNP Paribas said.

While CIB and international businesses fared better than expected, “French retail and asset management were weaker,” Azzurra Guelfi, a London-based analyst at Citigroup Inc., wrote in a note. The outlook for BNP’s French consumer-banking unit and an update on the bank’s capital remain in focus, she said.

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