BNP Paribas plans to buy back €5 billion of shares after the sale of its US unit, and has raised its profitability targets as traders posted a quarter that beat many Wall Street peers.
The Paris-based bank is set to distribute about €4 billion related to the sale of Bank of the West and €962 million as part of its ordinary shareholder return policy in two tranches during 2023, according to a statement on Tuesday.
For the fourth quarter, the bank posted net income of €2.15 billion, lower than estimates and down almost 7 per cent on the same period a year ago as expenses rose. Still, 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 more than $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.
“The highlight of today’s results was the distribution plans, which we expect will support the shares,” Jefferies analysts led by Flora Bocahut wrote in a note to investors. Overall, she said, the results were “unexciting,” with net income and costs worse than expected.
BNP swung between gains and losses in early Paris trading and was down 1.6 per cent.
The lender has a €7.6 billion 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 reduction in recurring costs by 2025, up from an earlier goal of €2 billion.
BNP Paribas’s fixed-income trading, an area of historic strength for the lender, saw revenue rise to €1.1 billion, more than the €855.6 million estimated by analysts, and a bigger jump than the 28 per cent gain seen 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.
BNP sees demand for fixed-income products remaining solid in 2023 on expected macroeconomic developments, Mr Machenil said in an interview.
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. 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, saw revenue gain 8 per cent from a year earlier on the back of official interest rate increases.
In France, BNP’s lending income remains muted compared to in other regions as the interest borne by French-regulated saving products keeps increasing while the bank cannot lend money above a cap rate set by the Bank of France.
The lender’s CET1 ratio, a key measure of its financial strength, stood at 12.3 per cent as of end December 2022.