A surge in fixed income trading revenues and lower-than-forecast provisions for bad loans at BNP Paribas helped the French bank beat analysts’ profit expectations in the second quarter.
BNP said on Friday that net income fell 6.8 per cent to €2.3bn in the three months to June, compared with the same period last year, above analysts’ expectations of €1.5bn. Revenues increased 4 per cent to €11.7bn, again beating estimates of €10.8bn.
Banks across Europe and North America have been boosted by the frenzied trading that took place this year as clients sought to reposition their portfolios during the coronavirus crisis. However, they have had to make tricky calculations about how much capital to hold back to cover souring loans.
BNP’s share price has fallen by a third this year as the banking sector faced challenges wrought by the pandemic, low interest rates and regulatory orders to pause dividends and buybacks. However, BNP’s better than expected results pushed its share price up about 5 per cent on Friday morning.
“Our diversified banking model has proven its effectiveness in supporting clients and the economy in front of an unprecedented health crisis,” said Jean-Laurent Bonnafé, BNP’s chief executive.
Meanwhile, analysts questioned whether BNP had reserved enough capital to cover the expected losses it would make on loan defaults. The bank booked €1.5bn of loan loss provisions after holding back €1.4bn in the first quarter.
“You could be forgiven for looking at BNP’s results and thinking all was well with the world,” said Omar Fall, an analyst at Barclays. “The impairment charge . . . makes little sense to us. We’d expect some strength in the shares initially but fading thereafter.”
BNP said it expected a full recovery by the middle of 2022. However, it increased its cost of risk, which reflects provisions for potential defaults, to €1.4bn — an increase of €800m over the same period last year.
Revenues at BNP’s investment bank, which is trying to take advantage and expand its market share as rivals pull back lending during the pandemic, jumped by a third, “thanks to extremely sustained activity in all client segments”.
The bank raised more than €160bn for clients in the second quarter, up 91 per cent compared with last year, as part of its push to become the dominant force in European investment banking.
Revenues from fixed income, currency and commodity trading soared more than 150 per cent compared with the same period in 2019, and BNP reported “an exceptional level of activity on the bond markets”. Equity trading “gradually recovered” and “moved gradually back to normal in derivatives in a still-challenging market”, but like-for-like revenues were still down 52.8 per cent.
The bank’s equity trading performance, a traditional strength for French lenders, remained poor, following a difficult first quarter when the cancellation of dividends pushed the equities trading and hedge fund servicing division to an €87m loss.
BNP’s common equity tier 1 ratio — a key indicator of balance sheet strength — stood at 12.4 per cent at the end of the quarter, up 40 basis points.
The bank also said on Friday that it had created 400 new positions in Europe due to the impact of Brexit, since “selling financial services from the UK to EU clients will not be allowed”.
“In the UK, the front office roles (mainly sales positions) and their associated set-up positions are impacted by these measures,” BNP said.
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