BNP’s Traders Take the Fight to Wall Street

(Bloomberg Opinion) -- For the first time in nearly two years, BNP Paribas SA has posted a quarterly rebound in its trading income. That’s undoubtedly good news for one of the few remaining European banks with ambitions to take on Wall Street in the global markets business.

The lender’s shares bounced in Paris trading after its earnings were published on Thursday, a break with the recent underperformance relative to its European peers. Still, it wasn’t all good news. Behind the unexpected trading gain there were big winners and losers, offering a reminder of why France’s biggest bank is having to fix its investment bank. 

After a torrid end to 2018 across its markets activities, BNP upstaged rivals in the first three months of this year with a surprising 29 percent jump in revenue from dealing in bonds and foreign exchange. Nevertheless, equities revenue fell by 30 percent, which was worse than other European and U.S. banks.

Overall, the corporate and institutional banking division — which includes trading, capital markets and custody — helped drive the group’s revenue growth of 3.2 percent. So did the insurance and consumer finance businesses, part of the unit that’s now the biggest sales contributor. The bread and butter business of deposit-taking and lending to clients across BNP’s main markets of France, Italy and Belgium suffered drops in revenue and profit as record-low interest rates squeezed margins.

That the bank was able to arrest the decline in fixed income is a sign that its reorganization may be bearing fruit. The lender is cutting costs across the investment bank, while trying to improve cross-selling to clients, doing more of its high-volume business electronically and targeting select work with the juiciest margins. It wants to do less of the stuff in the middle, where returns are getting thinner.

There’s still work to do. The company is only two months into a plan to increase cost savings through to 2020 after slashing its outlook for yearly revenue growth to 1.5 percent. BNP now aims to reduce expenses by 3.3 billion euros by the end of next year, and has delivered about 1.3 billion euros of those cuts so far. More than one-third of what’s to come will be at the investment bank.

While the fall in the stock-trading business reflects a strong comparative period last year, the erosion of its equity franchise amid low volatility is still worrying. In the fourth quarter, losses on hedges and lower activity in structured products explained the slump. In the first three months of this year, the bank benefited from improving valuations of the stock it holds on its books, although the pickup in client activity was only gradual.

For now, investors are relieved. Perhaps not all of Europe’s trading hopefuls are doomed to keep losing market share and income to the Americans. But investment banking on the continent remains a work in progress. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.

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