BNP Paribas Sees Revenue Recovery After Debt-Trading Miss

BNP Paribas SA signaled higher revenue and potential share buybacks this year after reporting weaker-than-expected trading results and a slowdown at the fixed-income business.

The French bank posted an uneven fourth-quarter performance that saw net income and provisions beat estimates, while overall revenue and trading -- including debt and equity -- came in below expectations. While the lender signaled an uncertain outlook as the pandemic continues to lock down large swathes of Europe, it did signal that revenue would trend upwards this year as economies start to rebound in the second half.

BNP Paribas Sees Revenue Recovery After Debt-Trading Miss

BNP joined other European lenders in hinting that the worst of the crisis is probably over in terms of their loan books, after Banco Santander SA and Deutsche Bank AG both set aside less than expected to cover the cost of souring credit. The French lender said provisions probably will decline to more average levels this year, cushioned by government compensation and stimulus plans intended to keep businesses and individuals afloat.

Revenue from fixed-income trading rose 22% to 1 billion euros ($1.2 billion), higher than the average increase of about 10% at the five biggest Wall Street banks but well below analyst forecasts of 1.24 billion euros. Equities revenue of 497 million euros was about 4% lower than a year earlier in a strong quarter and missed estimates of 568 million euros.

BNP Paribas rose 3.9% as of 11:23 a.m. in Paris trading to 44.13 euros. The stock has gained about 2% so far this year, giving the company a market value of about 55 billion euros.

BNP last year led a charge by French lenders that lobbied the European Central Bank to allow it to resume dividend payments, people with knowledge of the matter said at the time. While the ECB disappointed banks by saying they should keep dividends and share repurchases to less than 15% of profit for 2019 and 2020, BNP said it will aim to pay out 50% of 2020 profit once restrictions are lifted. That could include share buybacks later this year, it said.

Investment banks tapped into a trading bonanza last year as the Covid-19 crisis and the ensuing volatility shook up markets from foreign exchange to credit. That helped some lenders make up for pandemic-related setbacks such as higher loan-loss provisions and an extended period of ultra-low interest rates, which BNP said will “continue to heavily impact interest income” at retail banks.

“Those record levels that we saw in the pandemic environment” in fixed income won’t be sustained, Chief Financial Officer Lars Machenil said in a Bloomberg Television interview. “However, we anticipate that the market share that we were able to capture in 2020 will consolidate in 2021.”

Machenil said 2021 should be a stronger year for its equities business, particularly since it will further integrate the prime brokerage activities it acquired from Deutsche Bank.

Dividend Plan

BNP said its capital distribution policy will be reviewed in the new 2025 strategic plan. Revenue for last year was slightly down from 2019, with the bank saying it expected differences in momentum in different business lines and regions this year.

“The world is now experiencing a health crisis that is unprecedented in its extent and duration,” Chief Executive Officer Jean-Laurent Bonnafe said in a statement “It has tested us, as it has tested all components of our societies.”

The cautious tone of BNP contrasts with the more bullish outlook given by Deutsche Bank executives, who said on Thursday that the strong trading momentum seen at the end of the year had carried over into the first few weeks of 2021. A 17% gain in fixed-income trading revenue helped lift the German bank to its first annual net profit since 2014.

Provisions for loan losses at BNP were 1.6 billion euros in the quarter as many businesses remained closed in November and part of December due to France’s second virus lockdown. That boosted the total for the year to 5.7 billion euros, 79% more than in 2019. About 43% of the new provisions booked this year are linked to non-performing loans.

The bank earlier last year forecast that net income would decline between 15% and 20% in 2020. Excluding exceptional items, the decline was about 19%, to 6.8 billion euros.

The bank benefited in the quarter from a 193-million euro capital gain from the sale of several buildings and a 371 million-euro capital gain related to BNP’s strategic agreement with Allfunds.

©2021 Bloomberg L.P.

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