BNP sees profitability exceeding target as growth takes hold

Paris

BNP Paribas SA is signalling it's possible for a big European bank to reap the benefits of a stronger economy, just days after Deutsche Bank AG gave investors a cold shower.

An improving interest-rate environment is likely to support growth, France's largest lender said on Tuesday as it reported fourth-quarter profit and trading results mostly in line with analysts' estimates. BNP Paribas said it aims for return on equity to surpass its 10 per cent target for 2020, and also posted a 12 per cent increase in equity trading revenue.

BNP Paribas announced 2020 targets last year, before Emmanuel Macron won the French presidency and vowed to help business and loosen labour laws. His reforms may give more fuel to an economy that expanded in 2017 at the fastest pace in six years. In turn, that momentum is helping French banks boost lending volumes, partly offsetting historically low interest rates. Still, BNP's results came after a frantic market selloff, threatening the pace of future US rate rises.

"We are off to a good start" for those targets, chief financial officer Lars Machenil said in an interview with Bloomberg Television. "If, on top of that, the economic outlook crystallises going forward, then we are expecting to beat our target of a 10 per cent ROE."

BNP Paribas, which gets most of its revenue from consumer banking activities, posted quarterly revenue at its French retail network of 1.54 billion euros (S$2.52 billion), down 0.4 per cent but above the average analyst estimate compiled by Bloomberg News. Revenue at the French retail unit has shrunk for several years in a row, showing how any improvement in the rate outlook for its key markets remains crucially important.

BNP Paribas is one of the rare European players targeting an increase in trading revenue. In the fourth quarter, it had a 14 per cent decline in income from a year earlier to 1.07 billion euros from buying and selling stocks, bonds and other securities. That was in line with the 1.08 billion-euro average estimate of four analysts compiled by Bloomberg News.

BNP Paribas did better than Deutsche Bank, where sliding trading revenue and other issues surprised investors and sent the stock tumbling on Friday. Still, the French bank posted its lowest quarterly trading revenue in at least two years, showing how the industry-wide slump in revenue from bond trading offset bright spots in equity derivatives and prime services, where income rose.

Thanks to the corporate and investment bank's combination of different trading businesses, BNP Paribas "resisted well in the turmoil of the second half", Mr Machenil said.

Chief executive officer Jean-Laurent Bonnafe wants to make France's largest lender one of the top three European players in trading and corporate banking.

BNP Paribas is eyeing growth in key markets including Asia, the UK and Germany as well as in the US. In November, it decided to start a partnership with New York-based Global Trading Systems LLC to boost its share of the market in US Treasuries. BLOOMBERG