How BNP Paribas Took Investment-Banking Share in 3 Charts

(Bloomberg) -- BNP Paribas SA is climbing into the top tier of European investment banks as the industry’s struggling giants retreat.

The French bank ranked third among European firms in global markets revenue at the end of March, after boosting trading income by about $1 billion in the preceding 12 months, data compiled by Bloomberg show. Deutsche Bank AG, Credit Suisse Group AG and Barclays Plc saw trading revenue decline.

Jean-Laurent Bonnafe, BNP Paribas’s chief executive officer, told shareholders last month he wants the Paris-based firm to become one of the top three investment banks in Europe by winning hundreds of new corporate clients and doing more business with those it already has. He’s targeting growth in Germany, Britain and Scandinavia, as well as Asia and the U.S.

“There’s momentum in terms of corporate issuance and of providing the investment strategies and risk-management solutions clients are looking for,” Pascal Fischer, the head of capital markets for Europe, the Middle East and Africa at BNP Paribas, said in an interview.

How BNP Paribas Took Investment-Banking Share in 3 Charts

Shares of BNP Paribas rose as much as 1.9 percent in Paris trading on Tuesday, and were 1.5 percent higher at 62.54 euros by 3:55 p.m. The stock has climbed 77 percent in the past 12 months, outperforming Deutsche Bank, Barclays, Credit Suisse and UBS Group AG.

Europe’s investment banks have struggled to boost revenue since the financial crisis amid stricter capital rules, rising compliance costs and fierce competition from U.S. firms. Tougher conditions prompted UBS and Credit Suisse to pivot toward wealth management and pushed Deutsche Bank and Barclays into repeated rounds of restructuring.

BNP Paribas weathered the past decade without an annual loss, while Deutsche Bank and Credit Suisse -- burdened by legal penalties and reorganization costs -- each suffered billions in losses in just the past two years and tapped investors for funds in recent months.

There’s been less turmoil at BNP Paribas, where Yann Gerardin, a 30-year veteran of the firm, has been running the corporate and institutional bank, or CIB, since late 2014. Both Olivier Osty, the executive head of global markets, and Fischer also ascended through the ranks over decades.

How BNP Paribas Took Investment-Banking Share in 3 Charts

Gerardin brought the equities and debt trading operations together, a move that improved cooperation across teams, increased cross-selling opportunities and yielded cost savings, said Jean-Pierre Lambert, an analyst at Keefe, Bruyette & Woods in London. BNP Paribas, long a leader in equity derivatives and structured products, has climbed into third place in European bond sales this year, pushing Deutsche Bank out of the top three.

“BNP Paribas has broken its old silos structure and the effort is paying off,” said Lambert. “Innovations in equity derivatives, for example, are now more easily transferable to structured products in fixed income.”

Tech Investment

The bank, which is investing 3 billion euros to upgrade technology companywide, recently extended its electronic pricing and trading platform to rates and credit from equity derivatives. The investment bank announced plans last year to hire more than 200 developers for areas such as blockchain.

BNP Paribas intends to increase revenue by about 5 percent annually at its global markets operations through 2020, and boost return on equity -- a key measure of profitability -- to 19 percent at the CIB from about 13 percent last year.

The firm and French rivals, including Natixis SA and Societe Generale SA, saw a pickup in trading early this year partly as clients sought protection before the presidential election. Trading income at France’s top four banks surged 26 percent in the first quarter from a year earlier.

“So far they are on the right track,” said Carlos Duarte, a credit analyst at Allianz Global Investors, which has about 500 billion euros ($561 billion) under management. “But capital markets are volatile and only time will tell if this is sustainable.”

How BNP Paribas Took Investment-Banking Share in 3 Charts

There are signs a year-old rebound in debt trading is losing steam. JPMorgan Chase & Co. and Bank of America Corp., the two biggest U.S. banks, warned last month that second-quarter trading income was on pace to fall at least 10 percent from a year earlier as tranquil markets sapped demand. Fischer at BNP Paribas declined to give an outlook for the rest of 2017.

“Can you swim against the tide?” said James Chappell, an analyst at Berenberg in London. “Even the best-in-class investment banks are struggling.”

Still, European economic growth is accelerating, global stocks are near a post-crisis high and investors and company treasurers will probably remain in the market for risk protection as the potential for political shocks persists. There’s also optimism new President Emmanuel Macron will cut corporate taxes and loosen labor rules in France, spurring investment.

“Europe has had a number of false starts,” said Fischer. “We feel that now things are different.”