Why BNP Paribas Is Outpacing Its European Peers in Four Charts

With some of Europe’s largest banks still struggling to boost profitability and raise dividends, BNP Paribas SA is doing both. That helps explain why investors have driven the shares to the highest in almost a decade.

The Paris-based lender will probably report Tuesday that fourth-quarter net income more than doubled to 1.63 billion euros ($1.75 billion), according to analysts surveyed by Bloomberg, helped by a rebound in debt trading. For 2016, earnings probably totaled 7.6 billion euros, the most in six years.

Some of its biggest European peers are still in clean-up mode. Deutsche Bank AG just reported a second straight annual loss, while Italy’s UniCredit SpA is facing a 2016 deficit of about 11.8 billion euros. BNP Paribas is one of the few continental banks with a large consumer-banking footprint in several European countries and the U.S., alongside extensive trading and corporate-lending operations.

“Their strategy is paying off,” said Robert Jakobsen, an analyst at Jyske Bank AS in Denmark who has a buy rating on the stock. “Their diverse model has helped a lot. It’s like a wall against adverse interest rates and any shocks in investment banking.”

That said, record-low rates and sluggish economic growth have squeezed the retail-banking operations, and Chief Executive Officer Jean-Laurent Bonnafe will probably announce a plan for additional cost savings soon.

The following charts illustrate some of BNP Paribas’s strengths and challenges.

The French bank’s biggest source of trading revenue is its fixed-income business. While Deutsche Bank, Europe’s largest investment bank by income, lost ground to Wall Street firms in the fourth quarter, BNP Paribas “will probably reinforce its market share in Europe and maybe preserve it in the U.S.,” said Neil Smith, an analyst at Bankhaus Lampe who has a hold rating on the French bank.

BNP Paribas has said it expects to meet a 10 percent target for return on equity in 2016, even as rivals including HSBC Holdings Plc, Britain’s largest bank, have pushed back or watered down profitability goals.

BNP Paribas, which currently pledges to pay out 45 percent of its profit in dividends, may increase that level, said Jon Peace, an analyst at Credit Suisse Group AG who has a neutral rating on the bank. That could bring it closer to Societe Generale SA and Credit Agricole SA, its main French rivals.

As revenue contracts at its French consumer-banking business, BNP Paribas is mulling investments in technology to satisfy the needs of clients eager for mobile-banking services. At the same time, it’s likely to announce plans to cut as much as 2 billion euros in costs, mostly aimed at retail banking, according to analysts at Natixis SA.

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