BNP Paribas says revenue resilient despite equity trading hit
© Reuters. FILE PHOTO: The BNP Paribas logo is seen at a branch in Paris
PARIS (Reuters) – BNP Paribas (OTC:)’ profit fell by a third in the first quarter, as the coronavirus crisis hit equity trading and prompted the euro zone’s biggest bank to set aside more than half a billion euros in loan provisions.
The bank said it would accelerate cuts to its operating expenses and warned that its 2020 net income could be about 15% to 20% lower than in 2019.
As with French lender Societe Generale (PA:), revenue from equity derivatives trading was wiped out – the specialist financial instruments have traditionally been a source of pride for the French financial services industry.
But while revenue fell, the bank’s balance sheet mushroomed as it rolled out emergency loans to help businesses weather lockdowns to stem the spread of the virus. It said loans and repurchase agreements almost doubled during the quarter, with its balance sheet growing to 2.7 trillion euros from 2.2 trillion.
“The good resilience of revenues and results despite this shock demonstrates the robustness of the group’s diversified and integrated model,” chief executive Jean-Laurent Bonnafe was quoted in a statement as saying.
Net income fell to 1.28 billion euros in the quarter, while revenue fell 2.3% to 10.9 billion euros.
BNP’s trading results underperformed those of European rivals such as Barclays (L:) and UBS (S:) which both had a bumper quarter for trading.
It said equity trading revenue was “badly hit by the sharp falls in European markets at the end of March” and stood at minus 87 million euros versus 488 million euros in first-quarter revenue 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 Paribas said.
It added that the decisions to restrict dividends had a one-off negative impact of 184 million euros on its equity trading revenue.
Despite the blow to these “exotic” financial products, which are often used by investors to hedge their equity exposures, stronger results in fixed income trading and corporate banking kept BNP’s investment bank in profit.
Revenues at its corporate and institutional banking unit fell by 1.9%, while pretax income slumped by 61%. Fixed income trading revenue rose by 34.5%.
The bank has beefed up its equity derivatives business over the years in a bid to diversify its trading operations and make returns more stable by integrating structured portfolios from Credit Agricole (OTC:), RBS (LON:) and ING, as post-financial crisis reforms including stringent capital rules drove consolidation.
It has also boosted its prime brokerage, which deals with hedge funds, by taking on clients and Deutsche Bank (DE:)’s IT platform. It said on Tuesday that the transfer of first clients had already been achieved.
BNP, which has been run by Jean-Laurent Bonnafe since 2011, has taken advantage of overhauls at rivals such as Deutsche Bank and Credit Suisse (SIX:) to grab market share in Europe and has also challenged Wall Street banks.
The bank, regarded as a bellwether for the economy in Europe as the region accounts for 74% of its commitments, has already 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-Africa (EMEA) region, with a 12.8% market share as of April 17.
But the Paris-based bank has shrunk its commodity business and focused its strategy on Europe after paying a record fine in 2014 for violating U.S. sanctions.
It said its cost of risk, which reflects provisions for bad loans, rose by 85.4% to 1.42 billion euros. Provisions for expected losses due to the public health crisis amounted to 502 million euros.