BNP Paribas (BNPP) beat first-quarter profit forecasts on Thursday (Apr 25) as lower costs and a robust performance in global banking helped to offset a steep fall in its fixed income trading.
The eurozone’s biggest bank, led by company veteran Jean-Laurent Bonnafe, has made its investment banking division a key driver of its growth plan, and sees markets activities expanding annually by more than 7.5 per cent on average over the 2021 to 2025 period.
The French bank reported a 20 per cent fall in revenue from fixed income, currencies and commodities (FICC) trading, significantly underperforming rivals on Wall Street, where trading revenue declined by about 3 per cent on average amid less volatile markets.
In contrast, Deutsche Bank, which also reported quarterly results on Thursday, produced a 7 per cent increase in fixed income and currencies trading revenue.
BNPP said it was more exposed to the Europe, Middle East and Africa region, where it made 60 per cent of its FICC sales in 2023, and where the fall in activity was much more acute than in the United States.
“Investors may nitpick the CIB (investment bank unit) performance with another FICC miss and 20 per cent year-on-year decline in the FICC revenue base,” Jefferies said in a note, adding that BNPP showed good cost control.
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Most analysts were impressed by BNPP’s control on costs, which fell at a faster pace in Q1 than revenues, driving earnings.
JPMorgan Chase said the bank had showed a “solid start of the year for revenue”, while Citigroup said the bank’s operating profit showed “progress on cost savings”.
BNPP said group net income fell by 2.2 per cent to 3.1 billion euros (S$4.5 billion), beating the 2.4 billion euros expected on average by 19 analysts polled by the company.
Overall revenue fell 0.4 per cent to 12.5 billion euros, but topped the 12.2 billion euros expected by analysts.
Provisions for underperforming loans stood at 640 million euros, below the 819 million euros expected by analysts.
BNPP’s shares were edging up by 0.5 per cent at 0825 GMT, valuing the group around 78 billion euros.
The bank, which disappointed investors in February by delaying a key profitability target, struck an upbeat tone for 2024, reiterating its goal to generate full-year earnings of more than 11.2 billion euros.
It also gave a new target for group revenue, saying it expected it to exceed its 2023 distributable sales of 46.9 billion euros by more than 2 per cent, and that the effects of cost cutting flagged previously would begin from Q2.
However, revenue was flat or falling in most of the bank’s businesses in Q1.
Commercial and personal banking revenue rose 1 per cent to 4.2 billion euros – above analyst estimates – but the net interest margins in its French business dropped sharply, BNPP said.
In France, its net interest income, the difference between what lenders earn on loans and pay out for deposits, fell by 8 per cent in Q1 as the cost of inflation-hedging instruments offset a rise in net interest income, the bank said.
The French retail market, which is typically less profitable than in other European countries because of rules on mortgage and savings accounts, has proven difficult for BNPP.
The bank announced the abrupt departure last month of the head of that business, Marguerite Berard, who was seen by some industry sources as a potential successor to Bonnafe.
Investors are watching banks’ net interest income closely to see if the boost from rising interest rates, which has helped their profitability and share prices, is starting to fade.
BNPP’s corporate and investment banking business revenue fell 4 per cent.
Its global banking revenue rose 6.1 per cent, thanks to a jump in capital markets activities such as helping companies issue bonds. REUTERS
