BNP Paribas SA shares dropped the most since June after Franceâ€™s largest bank posted earnings that fell short of estimates and cast doubt over growth in its home market.
The bank tumbled as much as 5 percent in Paris trading after reporting fourth-quarter net income of 1.44 billion euros ($1.55 billion), below the 1.63 billion-euro average estimate of seven analysts surveyed by Bloomberg. Earnings at the French consumer-banking unit slumped, while fixed-income trading rose less analysts forecast.
Record-low interest rates and sluggish economic growth have held back consumer-banking profits at BNP Paribas and European peers. The bank, led by CEO Jean-Laurent Bonnafe, said it will spend 3 billion euros over the next three years to upgrade digital-banking services and increase automation while also seeking to squeeze out 3.4 billion euros in costs companywide. It set a target for return on equity of 10 percent for 2020 — in line with its 2016 goal.
Pretax earnings from French consumer banking fell 36 percent from a year earlier to 177 million euros as loan losses increased and revenue fell. The lender also booked about 130 million euros in costs related to job reductions in Belgium and Italy, and a 127 million-euro goodwill writedown at its Polish unit.
It will â€œremain difficultâ€ to return to revenue growth at the French retail unit over the coming year, Chief Financial Officer Lars Machenil said in an interview with Bloomberg Television.
At the corporate and institutional banking unit, an 8 percent increase in revenue helped drive a 51 percent jump in pretax profit. Revenue from fixed income, currencies and commodities, BNPâ€™s biggest source of trading income, rose 23 percent to 838 million euros, missing the 939 million-euro average of three estimates compiled by Bloomberg News.
Sales at BNP Paribasâ€™s equities and prime-services business rose 20 percent.
Overall, it was â€œa mixed set of results,â€ analysts at Citigroup Inc. wrote in a note to clients. The French retail business was â€œwas weaker than expected,â€ while the corporate and institutional banking unit looked â€œbetter.â€
For 2016, BNP earned 7.7 billion euros, the most in six years, even as some of its biggest European competitors struggled. Deutsche Bank AG last week reported a second straight annual loss, hurt by legal costs, while Italyâ€™s UniCredit SpA said it will post a 2016 loss of about 11.8 billion euros and tap shareholders for the third time since 2010.
BNP Paribas raised the dividend to 2.70 euros a share, and will target an average annual increase of more than 9 percent until 2020.
As BNP Paribas speeds up digital investments, new spending measures will outpace cost reductions this year before evening out starting next year. The bank is aiming for a return on equity of 10 percent in 2020 with a common equity tier one ratio of 12 percent. It also aims for total revenue to grow at least 2.5 percent on average each year, led by the international finance services and the investment bank. The bank expects profit to rise by more than 6.5 percent annually and is targeting a dividend payout ratio of about 50 percent.