BNP Paribas jumps as bank raises dividend, cost cuts
BNP Paribas jumped as the French lender raised its dividend to the highest in eight years and pledged to cut costs at the investment bank to help free up capital.
France's biggest lender proposed a dividend of 2.31 euros a share for 2015, up from 1.50 euros a year earlier, it said in a statement on Friday. Fourth-quarter net income fell 52 percent to 665 million euros ($744 million) from 1.38 billion euros, hurt by a goodwill writedown at its Italian unit. That missed the 864 millioneuro average estimate of five analysts.
Europe's largest banks are under pressure to shrink their securities units and focus on the most profitable businesses as regulators toughen scrutiny of riskier activities. Under its overhaul, BNP is seeking to cut risk-weighted assets at the investment bank by 20 billion euros and trim 1 billion euros in costs by 2019 as it seeks to focus on businesses that generate higher fees and use less capital. "Their solidity is a nice surprise compared with the very bad results of banks like Deutsche Bank and Credit Suisse," said Jerome Forneris, who helps manage about $9 billion at Banque Martin Maurel in Marseille. "They've identified growth sectors in which they can win market share and other underperforming sectors that they're going to reduce."
The shares jumped as much as 5.6 percent, the biggest intraday gain since August, and were up 4.5 percent at 42.79 euros at 12:28 p.m. in Paris. They have decreased about 18 percent this year. Deutsche Bank AG, which runs Europe's largest investment bank, and Credit Suisse Group AG both had losses at their securities units in the fourth quarter. At UBS Group AG, which overhauled its businesses in 2012 to focus on wealth management, the securities unit reported a profit drop of 63 percent.
BNP said it plans to reduce and reallocate more than 10 percent of risk-weighted assets at its corporate and institutional banking unit through 2019 as the business expands. The unit is seeking annual revenue growth of at least 4 percent between 2015 and 2019, an improvement in the costincome ratio, a measure of efficiency, by 8 percentage points and 1.6 billion euros of additional pretax profit compared with 2015. "The objective we have is to really improve operational efficiencies," Chief Financial Officer Lars Machenil said in an interview with Bloomberg Television's Caroline Connan. "We've adapted in the past, but there are some headwinds potentially ahead, particularly around regulation."
In the fourth quarter, CIB, which houses the securities-trading activities, said that pretax profit slipped 9.2 percent to 574 million euros from a year earlier. Global markets reported revenue of 1.18 billion euros, up 8.9 percent, with pretax profit down 12 percent.
The securities unit's revamp "has more substance than might have been anticipated and commitment to rein in capital consumption is significant," said Piers Brown, an analyst at Macquarie, who rates the stock outperform. Machenil said in the interview that BNP is winning market share as banks including Royal Bank of Scotland Group Plc are cutting securities businesses. "Part of that growth is stemming from market-share grabbing because some of the other banks have retracted out of some activities and we have taken on their clients," he said. "Even though the growth might not be as spectacular as it used to be, there is a difference between some retracting out of the business and we have definitely adapted."
Revenue from equity and prime services jumped 29 percent, helped by a "sharp rise" in derivatives, while fixed-income trading rose 1.3 percent, helped by a "good performance" in foreign exchange, credit and rates, the bank said. BNP said in the statement that it seeks to strengthen its "European leadership, capitalize on longterm regional growth in Asia-Pacific and better align the platform in the Americas with the group's strategy and clients."