The Gulf Time Newspaper One of the finest business newspapers in the UAE brought to you by our professional writers and editors.
Bloomberg
BNP Paribas SA reported the biggest fixed-income trading jump of all US and European banks in the first quarter, marking a rebound after recent losses and downgraded targets.
Debt trading revenue unexpectedly rose 29 percent from the previous year, helped by growth in rates and foreign-exchange transactions, the French bank said. That helped BNP’s global markets unit — its key trading division — post pretax profit of 252 million euros ($283 million), above the average estimate of analysts surveyed by Bloomberg.
Chief Executive Officer Jean-Laurent Bonnafe, who wants to create a European champion able to compete with stronger US banks, has been cutting costs and exiting businesses after being forced to cut 2020 targets and announcing 600 million euros in additional cost cuts because of a trading slump. BNP has shut down its proprietary trading unit and US commodity derivatives activities as part of the measures.
“Operating expenses were well contained and benefited from cost-saving measures, generating a positive jaws effect,†Bonnafe said, referring to banking jargon for income growth outpacing costs. “An upturn in client business†at the corporate and investment bank was particularly helpful, he said.
Revenue at the bank’s equities business fell more than analysts estimated, highlighting the challenge of reviving its derivatives business amid tough trading conditions and a downturn in volatility. BNP Paribas is revamping parts of the markets unit after last year was capped by a surprise loss in equity derivatives.
BNP Paribas’ fixed-income business reached 1.04 billion euros in revenue, snapping a streak of seven consecutive quarterly declines.
BNP shares rose as much as 1.8 percent in Paris and were trading 1 percent higher at 9:26 a.m. local time. The stock is up about 22 percent this year, better than the 16 percent gain of Europe’s Stoxx 600 banking index.
Despite the headwinds, BNP Paribas bucked the debt-trading trend seen at other major US and European investment banks. That helped France’s biggest bank post a 1.7 percent increase in global-markets revenue, while most other big players had declines.
“Fixed income is bearing the fruit of the changes that we have applied,†Chief Financial Officer Lars Machenil said in a Bloomberg TV interview.
Trading at the major Wall Street firms fell 14 percent on average in the quarter, driven by a 21 percent slump in equities, as clients remained cautious after a tumultuous end to 2018. The US government shutdown at the beginning of the year also damped sentiment.
Deutsche Bank, Germany’s largest bank, posted a 19 percent decline in fixed-income trading, while its equity-trading sales slid 18 percent. At Barclays Plc, first-quarter equities sales slipped 20 percent, but fixed-income revenue rose about 4 percent.
BNP’s revenue from equities trading and prime services for hedge funds in the first three months fell about 29 percent from a year earlier, adding to the travails seen the end of 2018. In the fourth quarter, the bank lost about $80 million over several days on U.S derivatives trades linked to the S&P 500.
BNP Paribas is targeting its spending to win clients in countries such as the US, the UK and especially Germany, where rival Deutsche Bank posted its weakest investment-banking results since the financial crisis.
ASSET SALES
BNP is selling assets as it seeks to bolster its financial strength to help meet regulatory demands. It booked 838 million euros of gains in the quarter from selling shares in India’s SBI Life Insurance Co. Ltd. Still, the French bank’s common equity Tier 1 capital ratio — a key measure of financial strength — was little changed at 11.7 percent at the end of March.
Retail banking in BNP’s key markets had a mixed performance. Income at its Italian unit, BNL, dropped about 5 percent, while in France, retail banking revenues were flat from the previous year.
Revenue growth of 14 percent in a grouping of other markets, including Poland, was among the bright spots.
BNP Paribas’s net income rose 22% to as muchas 1.92 billion euros, falling short of analyst estimates.
The total revenue rose 3.2% to 11.1 billion euros, beating estimates. Insurance business revenue grew 32%, helped by revaluations.
The wealth and asset management revenue fell 3.7%. The lender cites “lingering
impact†of end-2018 markets decline and reduced client appetite, but says there was gradual upturn towards the end of first quarter.