BNP’s surging costs overshadow pledges on profits and payouts

PARIS (Reuters) -BNP Paribas’ pledge to raise profits and hike shareholder returns fell flat on Tuesday as investors homed in on a spike in costs at the French lender.

Operating expenses rose by nearly 5% in the quarter, outpacing revenue growth. Rising costs have been a problem across the sector as banks have to pay more to attract talent while facing higher regulatory costs and online investments.

BNP’s shares were down nearly 1.5% in morning trade, underperforming the Stoxx Europe 600 Banks index, which was up around 1.5%.

Unveiling a new strategic plan, the euro zone’s largest listed bank said it would return 60% of net income to investors through 2025 compared to 50% previously and targeted a return on tangible equity — a key measure of profitability — of more than 11% in four years’ time, from 10% last year.

The prospect of higher interest rates has prompted European lenders to raise returns on shareholder capital to double digit levels with Nordea last week aiming for over 13% for 2025.

BNP’s fourth quarter net profit exceeded expectations after the bank set aside less money for troubled loans. It posted a near 45% rise in net income from a year ago to 2.31 billion euros ($2.64 billion), beating a mean forecast for 2.03 billion euros in a poll of analysts compiled by Refinitiv.

Revenue was up 3.7% at 11.23 billion euros, slightly below the 11.37 billion expected by analysts due to a drop in corporate and investment banking (CIB) sales.

Its cost of risk, reflecting provisions against bad loans, fell by 68.1% in the quarter.

In its CIB division, revenue was down 1.5%, driven by a 24.6% drop in fixed income, currencies and commodities trading.

The bank is targeting an average annual growth rate of more than 7% for net income through 2025 as well as a 3.5% increase in revenue over that period.

In its CIB division, BNP is targeting an annual rise of almost 3% on average from 2022 to 2025.

BNP Paribas said in December it had agreed to sell its U.S. unit Bank of the West to Canada’s BMO Financial Group for around $16.3 billion.

The lender said it could use disposals from the sale to finance bolt-on acquisitions. But BNP Paribas’ chief executive officer Jean-Laurent Bonnafe remained vague on potential targets.

“There is no predefined choice”, Bonnafe told reporters, adding the bank would prioritize investments in activities where its has a leadership in Europe.

($1 = 0.8763 euros)

(Reporting by Matthieu Protard; Editing by Clarence Fernandez, Shailesh Kuber and Carmel Crimmins)