BNP Paribas plans 5b euros of buybacks after US unit sale

BNP Paribas plans to buy back five billion euros (S$7.1 billion) of shares after the sale of its US unit. It has also raised its profitability targets, as traders posted a quarter that beat many Wall Street peers. 

The Paris-based bank is set to distribute about four billion euros related to the sale of Bank of the West, and 962 million euros as part of its ordinary shareholder return policy, in two tranches during 2023, it said on Tuesday (Feb 7).

For the fourth quarter, the bank posted net income of 2.2 billion euros, lower than estimates and down almost 7 per cent on the same period a year ago, as expenses rose. Yet revenue from trading debt securities surged 45 per cent, ahead of the Wall Street average, and better than the gain at European rival Deutsche Bank.

BNP Paribas sold Bank of the West in late 2021 to Canada’s Bank of Montreal for over US$16 billion, a higher price tag than some had expected. The windfall buttresses the bank’s expansion plans for Europe, at a time when rising interest rates are making lending in the region more profitable, and a less-downbeat economic outlook is keeping loan-loss provisions in check. 

“We are setting ambitious financial targets and pursuing our technological advances,” chief executive officer Jean-Laurent Bonnafe said. “The group has revised its objectives upward.”

The lender has a 7.6-billion-euro war chest for investments in technology and potential bolt-on deals, which could include boosting asset management or making inroads into insurance, chief financial officer Lars Machenil has said.

The bank raised its 2025 target for net income growth to more than 9 per cent from above 7 per cent, and return on tangible equity – a key metric of profitability– to about 12 per cent from above 11 per cent. It set a new goal for earnings-per-share growth of more than 12 per cent through the period.

The lender is also now targeting a 2.3-billion-euro reduction in recurring costs by 2025, up from an earlier goal of two billion euros. 

BNP Paribas’ fixed income trading, an area of historic strength for the lender, experienced a rise in revenue to 1.1 billion euros, more than the 855.6 million euros estimated by analysts, and a bigger jump than the 28 per cent gain across Wall Street. In the quarter, Deutsche Bank’s debt trading revenue increased 27 per cent, as the German lender snapped a long streak of market share gains. 

SEE ALSO

In 2023, big banks will show fintech who’s the boss

ECB to raise rates again and face questions about future path

BNP sees demand for fixed-income products remaining solid in 2023 on expected macroeconomic developments, Machenil said. 

In a tough quarter for equities traders, BNP limited the damage to a 3.4-per-cent fall in revenue for that business, compared with an average 10-per-cent decline across Wall Street. 

In recent years, the Paris-based lender has taken over Deutsche Bank’s prime brokerage business and Credit Suisse’s related clients, as those competitors retrenched. BNP Paribas is also seeking to boost its equity research unit Exane in the US. 

At the lender’s global banking unit, which houses its advisory and capital markets operations, revenue rose 15 per cent from a year earlier to 1.5 billion euros. That result bucks the trend for a quarter in which companies held off issuing debt and equities amid an uncertain outlook, aided by the performance of the transaction-banking unit that benefits from interest-rate increases. 

BNP’s Commercial, Personal Banking and Services unit, which includes its retail operations, gained 8 per cent in revenue from a year earlier, on the back of official interest-rate increases. 

In France, BNP’s lending income remained muted compared to other regions, as the interest borne by French regulated saving products kept increasing, while the bank could not lend money above a cap rate set by the Bank of France.  

The lender’s Common Equity Tier 1 (CET1) ratio, a key measure of its financial strength, stood at 12.3 per cent as at end-December 2022. BLOOMBERG