Bloomberg News

BNP Paribas Fourth-Quarter Net Beats Estimates; Shares Surge

February 16, 2012

(Updates with CEO comment from 20th paragraph.)

Feb. 15 (Bloomberg) -- BNP Paribas SA, France’s largest bank, reported fourth-quarter profit that beat analysts’ estimates and said its corporate- and investment-banking unit had a “good start” to the year.

The shares gained after net income dropped less than expected to 765 million euros ($1 billion) from 1.55 billion euros a year earlier. The average estimate of 10 analysts surveyed by Bloomberg was for earnings of 587 million euros.

The bank withstood a “quite difficult” period for financial markets, Chief Executive Officer Jean-Laurent Bonnafe, 50, said in an interview with Bloomberg Television today. “Progressively the situation throughout the euro zone should stabilize.”

Bonnafe, who took over in December after overseeing the purchase of Fortis assets, inherited a bank hurt last year from losses on Greek sovereign bonds. French lenders have been embroiled in Europe’s crisis because of their $620 billion in holdings of private and public debt in Greece, Portugal, Ireland, Italy and Spain, according to figures from the Bank for International Settlements.

BNP Paribas rose as much as 2.38 euros, or 7.1 percent, to 35.89 euros, the most in almost a month, and was at 35.73 euros at 12:44 p.m. in Paris trading.

The shares have gained 18 percent this year, giving the lender a market value of 43.1 billion euros. European financial stocks are rebounding after the European Central Bank provided 489 billion euros to lenders through a three-year refinancing operation in December and plans to offer a further series of loans at the end of February.

Greek Writedowns

BNP Paribas is “well-provisioned” for its Greek holdings, said Gonzague Legoff, a London-based investment manager at H2o AM LLP. “The key question remains the level of funding that might come from ECB facilities at the end of the month.” H2o manages about 2 billion euros and owns shares of the bank.

The lender booked 567 million euros in writedowns on Greek sovereign debt in the fourth quarter as it increased the provisioning level on the securities to 75 percent from 60 percent. In 2011, provisions on Greek sovereign bonds reached 3.24 billion euros.

Loan Losses

BNP Paribas posted losses in the quarter of 148 million euros from disposing of corporate loans as it raced to reduce dollar-funded assets. The bank, which expects about 650 million euros in such losses again this year, is also about halfway in taking 400 million euros of one-time costs at the corporate- and investment-banking unit, it said.

The company hasn’t decided whether it will tap the ECB’s funding offer at the end of the month, Bonnafe said today. BNP Paribas doesn’t need the funds, he said.

“If it’s clever to move, we will move,” he said in the interview. “If it’s not clever, we won’t.”

BNP Paribas’s share-price gain in 2012 pares the decline for the past 12 months to 38 percent. Societe Generale SA and Credit Agricole SA, France’s second- and third-largest banks, respectively, have lost more than half of their market value in the period.

BNP Paribas plans to pay a dividend of 1.20 euros a share for 2011, a 43 percent drop compared with a year earlier. Societe Generale and Credit Agricole scrapped their 2011 payout.

Shrinking Assets

The three banks are retreating, shrinking assets by about 300 billion euros and cutting at least 5,600 jobs to comply with international capital rules as they book Greek losses.

The lenders, together with Groupe BPCE, France’s fourth- largest bank, had taken 5.4 billion euros in writedowns on Greek sovereign holdings as of the end of September. Societe Generale and Credit Agricole both operate unprofitable Athens-based consumer-banking networks.

Euro-area finance ministers yesterday canceled a meeting in Brussels slated for today and will hold a teleconference instead to prod Greece to do more to clinch an aid package by identifying additional budget cuts of 325 million euros. The measures are among conditions that must be met for Greece to secure a 130 billion-euro rescue needed to avert financial collapse.

Dollar Financing

Part of the rescue includes a bond swap intended to slice Greece’s debt load. The exchange for new 30-year bonds with an average coupon of as low as 3.6 percent would cut 100 billion euros off more than 200 billion euros of privately held debt. Finance Minister Evangelos Venizelos said the country needs to make a formal offer to private bondholders for a debt swap by Feb. 17.

BNP Paribas, which achieved most of its self-imposed goal of reducing dollar financing by $60 billion by the end of this year, raised the target to $65 billion, it said today.

The lender is also booking losses after reducing European sovereign-debt holdings to help make its capital level less dependent on fluctuations in government-debt prices. The company posted 510 million euros of losses in the fourth quarter stemming from government bond sales.

BNP Paribas is “at ease” with its levels of holdings in French, Italian and Belgian sovereign debt, Bonnafe told reporters at a press conference in Paris, adding that he sees no relation between participating in the ECB’s three-year funding offers and buying sovereign debt.

The lender reduced its banking-book sovereign exposure by 29 percent in the second half to 75.3 billion euros as it cut Italian government holdings by 8.2 billion euros, according to a presentation handed to journalists.

Job Cuts

BNP Paribas’s pretax profit at the corporate- and investment-banking division slumped to 6 million euros from 1.09 billion euros a year earlier. Fourth-quarter sales at the unit fell 40 percent to 1.65 billion euros as fixed-income revenue slid 68 percent, hurt by losses from selling sovereign bonds. Equity-and-advisory sales dropped 31 percent to 405 million euros, while financing revenue slid 16 percent to 894 million euros, the bank said.

Bonnafe affirmed in the interview today that the division was off to a good start in 2012, without elaborating.

The company said Nov. 16 it plans to cut about 1,400 jobs at the division, or 6.5 percent of the unit’s staff worldwide. BNP Paribas booked 184 million euros in one-time costs in the fourth quarter after starting the job-reduction plan.

The lender doesn’t have plans for further job reductions at the corporate- and investment-banking business on top of those already announced, Bonnafe said. The bank cut the division’s bonus pool for 2011 by half, the CEO said.

Capital ‘Stretched’

“Growing the corporate and investment bank will require much more capital than they used before” as new Basel III rules are introduced, Alain Tchibozo, a London-based analyst at Mediobanca SpA, said in an interview with Bloomberg Television. “Let’s face it, the real challenge for BNP Paribas is to emerge from this crisis stronger, and to do that, to gain market share, you need capital. Unfortunately their capital base is stretched.”

BNP Paribas reached the European Banking Authority’s capital requirements six months ahead of the mid-2012 schedule, it said today. The London-based EBA in December had found a 1.5 billion-euro capital shortfall at France’s largest bank. The company repeated that it will satisfy Basel III’s 9 percent common equity Tier 1 ratio by year end as the lender retains earnings and adapts its business.

The French lender has no plans for a capital increase after it complied with the EBA’s targets “quite swiftly,” Bonnafe said.

BancWest ‘Footprint’

BNP Paribas gets most of its revenue from France, Belgium, Luxembourg and Italy and the company also owns BancWest, a network of branches in the U.S. Through its purchase of Fortis in 2009, the lender added clients in faster-growing economies such as Turkey and Poland.

Pretax profit at the French retail-banking network gained 13 percent to 378 million euros, while pretax earnings at San Francisco-based BancWest increased 1.9 percent to 159 million euros, the company said. California is the “footprint” of BNP Paribas in the U.S. and the company has no intention of exiting that retail-banking market, Bonnafe told reporters after the press conference.

BNP Paribas’s Italian retail network, Banca Nazionale del Lavoro SpA, had 102 million euros in pretax profit, up 11 percent from a year earlier, the company said. The Europe- Mediterranean division, which includes consumer-banking networks in countries such as Turkey, Ukraine and Egypt, had a 20 million-euro pretax profit, compared with 7 million euros a year earlier.

Pretax earnings at the investment-solutions unit, which includes asset management, private banking and insurance, fell 61 percent to 212 million euros on lower asset-management revenue.

--With assistance from Caroline Connan and Mark Barton in London. Editors: Stephen Taylor, Keith Campbell

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

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net; Edward Evans at eevans3@bloomberg.net


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