BNP Joins European Peers With Trading Beat, Lower Provisions
BNP Paribas SA got a bigger-than-expected boost from trading and painted a relatively optimistic picture of the pandemic’s impact on its loan book, as it joined European peers in signaling an eventual return to dividend payments.
Third-quarter revenue from trading fixed income, currencies and commodities surged 36% to 1.25 billion euros ($1.45 billion), the Paris-based bank reported Tuesday, surpassing the 1-billion-euro estimate from analysts polled by Bloomberg. Equity trading revenues rose 21.4%, beating the highest estimate, after two disappointing quarters.
BNP Paribas bounced back more quickly than its French peers from losses on equity derivatives early in the pandemic, when the lenders’ strategies were tripped up by sudden dividend cancellations. The firm also indicated that Covid-driven loan losses are avoiding a worst-case scenario, setting aside about 16% less than analysts predicted, even as France and other European countries are forced to impose lockdowns again to fight the pandemic.
The new “lockdowns seem different and include the lessons we learned from the previous ones,” Chief Financial Officer Lars Machenil said in an interview with Bloomberg TV. “There will be an impact, but it should be different in nature than what we saw previously.”
BNP rose 6% at 9:05 a.m. in Paris trading, leading European bank stocks higher. It’s still down 38% this year, as French lenders were hit among the hardest by the suspension of dividends.
Some of the biggest banks in the region have set aside the least amount of money last quarter for doubtful loans since the onset of the coronavirus, after a period of relative calm over the summer. Some, such as Spain’s Banco Santander SA, are touting their financial strength to lobby regulators to restart dividends while the likes of Deutsche Bank AG are making a case for bigger bonuses for bond traders who raked in bumper revenue.
BNP Paribas, too, is counting on a return to dividends when European regulators eventually lift the ban they imposed to conserve capital during the crisis. The bank said 50% of its profits are being placed in reserve for a 2020 payout. Its common equity Tier 1 ratio, a measure of financial strength, stood at 12.6% at the end of the third quarter -- more than regulators’ requirement, its own 2020 target, and analysts’ estimate.
The tone struck by Europe’s lenders is in stark contrast with a deteriorating backdrop of new infections and restrictions that threatens to bring more economic pain. Bank of Spain Governor Pablo Hernandez De Cos has said it’s a “question of when, not if” loan books will deteriorate in the crisis.
Key figures from the bank’s results:
- The lender set aside 1.2 billion euros to cover potential loan losses, down 14% from the last quarter. Analysts expected 1.5 billion euros. It previously indicated provisions could be lower in the second half, provided the pandemic and economy don’t worsen.
- Net income of EU1.9 billion beat Bloomberg-compiled estimate of EU1.5 billion
- Revenue of EU10.9 billion beat EU10.7 billion estimate
BNP Paribas reaffirmed its forecast that 2020 profit will be 15% to 20% below its 2019 level. In the nine months to date, net income is down 13.4% from a year earlier. While it remained profitable in the first half, unlike Natixis SA and Societe Generale SA, the bank is still moving away from some crisis-hit lines of business. It shut down its Swiss commodity trade-finance unit -- a business it pioneered -- after massive frauds in the sector were exposed.
The bank’s debt trading results beat the average 25% of the largest Wall Street firms, though it was slowdown from the 154% jump seen in the previous quarter and trailed the 47% increase at Deutsche Bank AG. BNP’s equities traders also did better than their U.S. peers, where revenue on average increased 15% last quarter.
As the European banking sector is entering a phase of consolidation, BNP Paribas is playing down his role as such.
“Europe would like to have some consolidation”, Machenil said. “This might lead to some more smaller and in-country kind of mergers, but that is not applicable to us”.
©2020 Bloomberg L.P.