BNP Paribas chalks up 63% rise in Q4 trading revenue

Zurich

BNP Paribas SA kept pace with gains at some of its biggest Wall Street rivals in the fourth quarter, posting a near 63 per cent jump in fixed-income trading revenue after a rebound in rates and foreign exchange activity.

Fixed income, currency and commodity (FICC) trading revenue jumped to 820 million euros (S$1.25 billion) in the final three months of the year, way ahead of its lacklustre earnings a year earlier, though falling short of the US$1 billion generated in the third quarter. The results place BNP ahead of European rivals Deutsche Bank AG and UBS Group, and in line with earnings at some of the biggest US banks including Goldman Sachs Group Inc.

Chief executive officer Jean-Laurent Bonnafe is overseeing a revival of the bank's trading performance after slashing costs and downgrading revenue and profitability targets a year ago. That came after the bank lost money on index derivatives hedging and because of "extreme market movements" at the end of 2018.

Still, the Paris-based bank joined European rivals in paring back some of its targets at a time when prolonged negative rates are eating into lending margins.

The bank introduced a 10 per cent 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.

FICC benefited from "very strong growth across all segments", BNP said, highlighting rates, foreign exchange and credit. That helped BNP's global markets unit - its key trading division - more than double revenue from a year earlier. Equity and prime services revenue increased to 520 million euros from a "low base" of 145 million euros a year earlier.

BNP's corporate and investment bank is well positioned for 2020 after gaining market share in its key businesses last year, chief financial officer Lars Machenil said in a Bloomberg TV interview.

"International financial services remain the engine of growth," he said.

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 per cent in the quarter to 11.3 billion euros, ahead of estimates and outpacing a 4.6 per cent 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 per cent at the end of the year from the third quarter.

Net income rose 8.6 per cent 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, Mr 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 US$80 million on derivatives trades linked to the US stock market.

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 on 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 per cent jump. Bank of America had one of the lowest increases, with a 25 per cent jump in revenue.

BNP Paribas is targeting its spending to win clients in countries such as the US, the UK 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. BLOOMBERG