Paris: BNP Paribas fell short of profit expectations for the second quarter on Tuesday as a hit from its Greek exposure and sluggish growth in its retail division outweighed a resilient showing in investment banking.
BNP chief executive Baudouin Prot, who will become chairman in December when BNP Paribas veteran Jean-Laurent Bonnafe takes over as CEO, maintained that loan loss provisions would fall further this year, despite a €534 million ($768.3 million) charge this quarter linked to Greece.
BNP Paribas has the biggest exposure to Greek sovereign bonds among its French peers, at close to €5 billion. It was a key player in coordinating the private sector Greek bailout which resulted in the charge.
The bank said it held €2.3 billion of Greek bonds maturing by the end of December 2020 and affected by its bailout participation. It will take a 21% haircut on these, meaning it will not recover their full value.
Prot said he was confident that a bailout plan being worked on with banks and insurers exposed to the bonds would fall into place swiftly, and that it was likely enough contributors would sign up to make it work.
“There is already quite a number of major financial institutions...that are going to tender their sovereign bonds to the exchange,” Prot said.
Investment Banking Resilient
He rejected concerns that BNP Paribas’s large exposure to Italy, also in the limelight over its debt burden, would be problematic and insisted the Greek charge was likely to be a one-off occurrence.
BNP Paribas managed to curtail the fallout from a tough three months for bond trading, performing better in this area than rivals, and grew revenues in some of its key retail networks, including in Italy.
Net income was lower than expected at €2.13 billion but flat compared to the same period in 2010 and short of the €2.23 billion consensus prediction from analysts polled by Thomson Reuters I/B/E/S.
Prot pointed to the Greek charge as the main foil.
But revenues, which came in at €10.9 billion, were also weaker than forecast, falling short of the €11.2 billion estimate average from an analyst poll by Thomson Reuters I/B/E/S.
BNP shares edged 0.5% lower in low volume early trade in Frankfurt. BNP Paribas posted improved investment banking revenues, which grew 5.7% from a year ago as the capital markets business improved, despite a tough period for the sector.
Even though revenues missed forecasts, Prot said retail and investment banking growth would help France’s biggest listed bank avoid the thousands of redundancies seen at rivals.
“We didn’t go for the go-go hires peers did in the last few quarters. If we didn’t go for the go we didn’t have to go for the stop,” Prot told Reuters Insider in an interview, adding that costs were under control.
Britain’s HSBC shocked on Monday when it announced 30,000 job cuts.
Mass redundancies are still a less common occurrence in the French banking industry, however, given very high local barriers to layoffs.
Fixed income earnings fell 12.2%, a much smaller drop than for many rivals. The bank still saw a slowdown elsewhere, however, including in financing.
Its investment solutions division, which houses its wealth management business, also grew, with revenues rising 6.8% compared to a year ago.
The bank said its core Tier 1 ratio stood at 9.6%, up from 8.4% a year ago, as Prot rejected the need for the bank to raise additional capital.