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BNP Paribas sees tax, compliance pressures piling up
[PARIS] BNP Paribas, France's largest bank, said on Thursday that rising taxes and new regulations would impact earnings next year by 500 million euros and unveiled increased cost cuts to cover growing compliance and control expenses.
The mounting burden would add to pressures from ultra-low interest rates crimping its margins and a weaker-than-expected euro zone economic recovery, BNP said.
This painted a sharply more pessimistic picture than the assumptions underlying the bank's 2014-2016 strategic plan, which targets a return on equity of at least 10 percent next year. "The group is facing a deteriorated economic and interest rate context compared to the base scenario," BNP said in a statement. "The group is also facing a sharp rise in taxes on banks in Europe." The bank's profit was almost entirely wiped out last year by a nearly US$9 billion fine to settle a US sanctions violations case, with BNP posting 2014 net income of 157 million euros (US$178 million).
For the fourth quarter, the bank reported net income of 1.3 billion euros, up sharply from the 110 million booked a year earlier, which was already hit by a provision for the US case.
Despite the impact of the US fine on its bottom line, the bank said it proposed maintaining its dividend at 1.50 euros per share for the third year in a row.
The bank reached a settlement with U.S authorities in June over accusations that it had violated US sanctions against Sudan, Cuba and Iran over a 10-year period up to 2012.
After tightening controls following the US case, compliance and regulatory costs would reach 250 million euros more than expected in 2016 under the bank's strategic plan. They would be largely absorbed by 230 million euros in additional cost cuts.
However, costs related to Europe's new banking union would add even more pressure on expenses, with BNP Paribas expecting banking-sector specific taxes to top 900 million euros next year.
Though such taxes, combined with the costs of meeting new US and international regulations, were expected to drain half a billion euros from net income in 2016, the bank said they and their impact should ease thereafter.
Meanwhile, lower-than-expected interest rates were hitting retail deposit revenue, and weaker-than-expected euro zone growth was weighing down on retail and corporate loan volumes.