BNP warns of 2020 profit fall as crisis wipes out equity trading
BNP Paribas set aside more than half a billion euros in loan provisions on Tuesday as the coronavirus crisis wiped out the French bank’s revenue from equity derivatives trading and knocked a third off its first quarter profit.
However, Chief Executive Jean-Laurent Bonnafe looked beyond the blow to trading in equity derivatives, which have traditionally been a source of pride for the French financial services industry, and focused on BNP’s wider business model.
“The good resilience of revenues and results despite this shock demonstrates the robustness of the group’s diversified and integrated model,” Bonnafe said in a statement.
Provisions for expected losses due to the coronavirus crisis were 502 million euros, BNP said. Its cost of risk, which reflects provisions for bad loans, rose by 85.4% to 1.42 billion euros over the period.
While BNP warned that its 2020 net income could be about 15% to 20% lower than in 2019, the bank’s loans and repurchase agreements almost doubled during the quarter, with its balance sheet growing to 2.7 trillion euros from 2.2 trillion as it rolled out emergency loans to help businesses weather lockdowns.
“It’s a key moment for them, as they’ve had goals to increase their market share in Europe, to be a leader is several activities,” Thierry Le Clercq, fund manager at Mandarine Gestion, said.
Like its rival Societe Generale (SOGN.PA), BNP’s trading results underperformed those of European rivals such as Barclays (BARC.L) and UBS (UBSG.S), which both had a bumper quarter.
Paris-based BNP, whose net income fell to 1.28 billion euros in the quarter while revenue dropped 2.3% to 10.9 billion euros. said it would accelerate cuts to its operating expenses.
Shares in BNP, which had dropped by more than 13% since SocGen’s first quarter loss last week, were up 4.96% at 0832 GMT.
Analysts said that the 2020 net income guidance, given by BNP, was higher than consensus estimates, which might prompt some upside revisions.
BNP’s equity trading was “badly hit” by market falls at the end of March and revenue dropped to minus 87 million euros, versus 488 million euros in the same period a year ago.
“The extreme and exceptional volatility thus led to a dislocation in hedges, in particular due to the European authorities’ restrictions on 2019 dividends,” BNP said, adding that these had a one-off negative impact of 184 million euros.
Despite the blow to these “exotic” products, a stronger performance in fixed income trading and corporate banking kept BNP’s investment bank in profit.
“BNP has one of the largest diversification of activities, no activity weighs too much in results. By default, it is one of the most balanced banks in the sector with a proven resilience,” said François Chaulet, managing director at Montsegur Finance.
Revenue at BNP’s corporate and institutional banking business fell by 1.9%, while pretax income dropped 61%. Fixed income trading revenue rose by 34.5%.
The bank has beefed up its equity derivatives business in a bid to diversify its trading operations and make returns more stable by integrating structured portfolios from Credit Agricole, RBS and ING.
It has also boosted its prime brokerage, which deals with hedge funds, by taking on clients and Deutsche Bank’s IT platform. It said on Tuesday that the transfer of the first clients had already been achieved.
BNP, which has been run by Bonnafe since 2011, has taken advantage of overhauls at rivals such as Deutsche and Credit Suisse to grab market share in Europe and challenge Wall Street banks.
Seen as a bellwether for the economy in Europe as the region accounts for 74% of its commitments, BNP said it had raised more than 115 billion euros in financing for clients in 2020 across bond, syndicated credit and equity markets.
It said it ranked number one in syndicated loans in the Europe, Middle East and Africa (EMEA) region, with a 12.8% market share as of April 17.
But the bank has shrunk its commodity business and focused on Europe after paying a record fine in 2014 for violating U.S. sanctions.