BNP Keeps Up With Wall Street Trading as Low Rates Cast a Shadow

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(Bloomberg) --

BNP Paribas SA kept pace with trading gains at some of its biggest Wall Street rivals in the fourth quarter, while cautioning that it’s not immune to the impact from a prolonged period of negative interest rates.

Fixed income, currency and commodity trading revenue jumped almost 63% in the final three months of the year, placing BNP ahead of European rivals Deutsche Bank AG and UBS Group, and in line with some of the biggest U.S. banks such as Goldman Sachs Group Inc. Despite those gains, the Paris-based bank joined European rivals in paring a profitability target at a time when lending margins are under pressure.

BNP Keeps Up With Wall Street Trading as Low Rates Cast a Shadow

Chief Executive Officer Jean-Laurent Bonnafe is overseeing a revival of the bank’s trading unit after slashing costs and downgrading revenue and profitability targets a year ago. Last year he agreed to take over Deutsche Bank prime brokerage clients as he seeks to take market share from rivals cutting back their investment banks.

Equity and prime services revenue increased to 520 million from a “low base” of 145 million euros a year earlier, BNP said. In fixed income trading, it benefited from “very strong growth across all segments.” All told, BNP’s global markets unit -- its key trading division -- more than doubled revenue from a year earlier.

Chief Financial Officer Lars Machenil said in a Bloomberg TV interview that the corporate and investment bank is well positioned for 2020 after gaining market share in its key businesses last year.

“International financial services remains the engine of growth,” he said.

Tweaking Targets

Shares of the lender swung between gains and losses as investors weighed the strong trading figures and the slightly muted outlook. The stock was 0.4% lower at 9:51 a.m. in Paris trading, bringing declines this year to 7%.

The bank introduced a 10% return on tangible equity target for 2020, dropping a previous and slightly higher target, though the newer figure is still more ambitious than many rivals. For 2020, the bank targets business growth in all its operating divisions and a decrease in the absolute value of its operating expenses.

Overall, revenue rose 11.5% in the quarter to 11.3 billion euros, ahead of estimates and outpacing a 4.6% increase in costs in what is known as positive jaws effect. The bank’s common equity Tier 1 ratio, a measure of financial strength, further increased by 10 basis points to 12.1% at the end of the year from the third quarter. Net income rose 8.6% in the quarter to 1.85 billion euros, slightly missing the average analyst estimate of 1.88 billion euros.

As part of the measures announced a year ago, Bonnafe pledged an additional 600 million euros in cost cuts to weather a trading slump. The bank is targeting about 3.3 billion euros of expense reductions by 2020. Results at the end of 2018 had been particularly difficult, when the bank lost about $80 million on derivatives trades linked to the U.S. stock market.

Wall Street’s Rally

The French bank is past halfway through its 2020 cost plan, but has so far stayed clear of suggesting any big job-cutting plans like those at Parisian rival Societe Generale SA or the thousands of planned reductions at Deutsche Bank. Instead, BNP’s moves have included outsourcing equity research in Asia to Morningstar Inc. The bank said Wednesday that it plans to generate additional recurring savings of 1.5 billion euros in 2020.

BNP’s performance in FICC trading last quarter puts it near the middle of the pack compared with Wall Street Peers. Morgan Stanley led the gains after seeing revenue more than double, while JPMorgan posted an 86% jump. Bank of America had one of the lowest increases, with a 25% jump in revenue.

BNP Paribas is targeting its spending to win clients in countries such as the U.S., the U.K. and especially Deutsche Bank’s backyard, Germany, where the mass of small and medium-sized companies have traditionally been the backbone of its export-oriented powerhouse economy.

©2020 Bloomberg L.P.

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