Bloomberg News

BNP Paribas to Boost Capital Ratio Through U.S. Asset Cuts

September 14, 2011

(Updates with calculation of capital uplift in second paragraph, closes shares in last.)

Sept. 14 (Bloomberg) -- BNP Paribas SA, France’s largest bank, aims to boost its common equity tier 1 capital ratio to 9 percent by the start of 2013 as it scales back U.S. dollar corporate- and investment-banking business.

BNP Paribas is taking steps to cut risk-weighted assets by about 70 billion euros ($96 billion) to increase the capital ratio by 1 percentage point under Basel III rules, the Paris- based company said in a presentation on its website today. That will free up about 6 billion euros of capital according to Bloomberg calculations and confirmed by the bank. As part of the effort, the lender is is cutting its corporate- and investment- banking balance sheet by $82 billion.

“Since early 2011, the group has taken actions to adapt the business model to the new liquidity, solvency and leverage environment,” the bank said in the presentation. BNP Paribas trimmed assets by $22 billion in the first half, mostly in capital-markets activities, and plans additional cuts in dollar assets of $60 billion by the end of 2012, by curbing lending as well as through sales and business disposals.

BNP Paribas had its Aa2 long-term rating kept under review for a possible cut by Moody’s Investors Service today. The lender fell as much as 9.8 percent in Paris trading. Moody’s cut by one level the long-term debt ratings of Credit Agricole SA and Societe Generale, France’s second- and third-largest banks, respectively.

Greek Debt

BNP Paribas’s exposure to the sovereign debt of Greece, Ireland and Portugal is “manageable,” the bank said. In Greece, the company would have a 1.7 billion-euro pretax additional writedown on its sovereign holdings if it took a 55 percent mark-to-market impairment, it said. Any markdown on the Greek sovereign bonds in third-quarter accounts will depend on the implementation of the rescue package agreed to on July 21, which involved a 21 percent writedown on debt maturing by 2020, it said.

French lenders top the list of Greek creditors with $56.7 billion in exposure to private and public debt, according to a June report by the Basel, Switzerland-based Bank for International Settlements. Credit Agricole has an unprofitable Greek subsidiary, Emporiki Bank of Greece SA, while Societe Generale has a controlling stake in Greece’s Geniki Bank SA. BNP Paribas doesn’t have a Greek consumer-banking unit.

“Moody’s has concluded that BNP Paribas has a sufficient level of profitability and capital that it can absorb potential losses it is likely to incur over time on its Greek government bonds,” the ratings company said. The long-term debt and standalone bank financial strength ratings of BNP Paribas remain on review because of concerns about “the structural challenges to banks’ funding and liquidity profiles,” Moody’s said.

Mortgage Lending

BNP Paribas is also aiming for a 9 billion-euro reduction of mortgage lending at its personal-finance division in Spain, the Netherlands, Switzerland, Norway and Hungary, the bank said. The company is seeking to cut lending at the equipment-solutions unit by 3 billion euros as it scales down business in the U.K., Switzerland and Hungary and exits some leasing activities such as real estate, yachts and business jets, it said.

BNP Paribas fell 3.9 percent to 26.90 euros in Paris, bringing this year’s decline to 44 percent on escalating concern that the European sovereign debt crisis is turning into a banking crisis. Credit Agricole has fallen 45 percent and Societe Generale 57 percent. The shares advanced yesterday after BNP Paribas and Societe Generale said they can withstand a Greek sovereign default and a reduction in lending from U.S. money- market funds.

--Editors: Frank Connelly, Stephen Taylor

To contact the reporter on this story: Fabio Benedetti-Valentini in Paris at fabiobv@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net


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