BNP Paribas’ trading business bolster sales as bank lifts longer term targets

By Mathieu Rosemain and Matthieu Protard

PARIS (Reuters) – BNP Paribas’ trading business drove the French bank’s sales growth in the fourth quarter, underpinning Chief Executive Jean-Laurent Bonnafe’s expansion strategy as Wall Street peers show signs of retreat in the field.

Global markets revenue jumped by about 24% in October-December, the euro zone’s biggest bank said on Tuesday, fuelled by a 45% leap in revenue from trading in commodity derivatives, rates, foreign exchange and emerging markets.

BNP’s 45% sales growth in FICC trading (fixed income, commodities, currencies) compared with 25% growth at peers, analysts at Barclays said.

With Bonnafe at its helm for over a decade, BNP has been growing securities trading, in part taking advantage of rivals’ retrenchment as Wall Street firms from Goldman Sachs to Morgan Stanley axe jobs amid a slump in dealmaking.

Revenue at BNP’s trading and securities services branch CIB rose 15.7% in 2022, making it the biggest contributor to the bank’s sales growth as French lenders traditionally take longer than their continental peers to reap the benefits of rising interest rates.

Shares in BNP Paribas were up as much as 4% by 1432 GMT on Tuesday, outperforming the euro zone bank index and valuing the group at more than 78 billion euros ($83 billion).

Investors welcomed the group’s upgrade of its 2025 targets, which came on top of a 5 billion-euro share buyback plan this year, essentially funded by the $16.3 billion sale of BNP’s U.S. retail business.

GRAPHIC- BNP- https://fingfx.thomsonreuters.com/gfx/mkt/gdvzqdngrpw/BNP%20shares.PNG

Interest rate rises

BNP said it now expected a return on tangible equity (ROTE) of around 12% by 2025, compared to a previous target of more than 11%.

The bank also foresees average annual growth in net income of more than 9% between 2022 and 2025, up from a previous 7% forecast, in part thanks to more than 2 billion euros in added revenue from interest rate rises.

“These are upward revisions that are quite significant and not so frequent,” Bonnafe told reporters in a call.

The higher guidance offset lower-than-expected profit figures in the fourth quarter. BNP Paribas’ net income fell by 6.7% to 2.15 billion euros.

That reflected a 52% jump in the cost of risk – money set aside for failing loans – as well as exceptional operating expenses on restructuring costs and IT reinforcement.

The group also cited higher inflation and rising interest rates to explain the hike in provisions on some of its less risky loans in 2022.

($1 = 0.9334 euros)

(Writing by Mathieu Rosemain; additional reporting by Danilo Masoni; editing by Ingrid Melander, Kirsten Donovan and Susan Fenton)