BNP Paribas bullish despite domestic crackdown on banks

PARIS Wed Nov 21, 2012 1:13pm EST

PARIS (Reuters) - BNP Paribas (BNPP.PA), France's No. 1 bank, is confident it can win market share despite the threat of an upcoming domestic crackdown on banks' risky trading, its head of corporate and investment banking said.

A draft French law, which will force banks to house risky proprietary trading operations in a separate entity, will likely only impact a tiny slice of revenues at BNP, Alain Papiasse said, adding the final proposal could still change.

"Given that we have few speculative activities, if we have to put a tiny bit into a separate entity with more capital... we will adapt," he told journalists at a media event on Wednesday.

Proprietary trading only accounts for 1 percent of investment banking revenue at BNP, which for the year 2011 would put it at some 100 million euros ($128 million), said Papiasse.

BNP, like other French and European banks, has spent the past year cutting assets and staff to better withstand the euro zone's debt crisis and tougher global Basel III rules on risk-taking.

Its relatively high capital levels have put it ahead of rivals in the race to meet Basel III, giving management strategic leeway to think about where it can grow its business.

The French government reform will require banks to split risky proprietary trading from activities deemed useful to the economy. Sources earlier told Reuters that banks' crucial business of market-making would be spared.

The law is expected to come into force before the end of 2013, although subsidiaries of foreign banks in France are not expected to be targeted, banking sources told Reuters. This was in some ways fair given U.S. and U.K. banks' preference for using London as a primary trading base, one source said.

Regarding possible bans on high-frequency trading and prop trading of commodity derivatives, Papiasse said the bank's trading was firmly in the market-making category and its commodities activities focused on client products like hedging.

GROWTH FOCUS

At a time when lenders such as Deutsche Bank (DBKGn.DE), Royal Bank of Scotland (RBS.L) and UBS (UBSN.VX) are still slashing jobs and overhauling business models to adapt to Basel III, BNP is moving its focus to growth.

"We have turned the page from the past year's efforts to cut debt," Papiasse said. "For our rivals, who are forced to take action to boost profitability, however... there are three more years of deleveraging ahead."

BNP and domestic rivals Credit Agricole (CAGR.PA) and Societe Generale (SOGN.PA) have all completed year-long drives to slash debt by dumping assets and cutting jobs, after market panic in the summer of 2011 deprived them of cheap funding.

Citing BNP's capital ratio of 9.5 percent under Basel III - one of the highest in Europe - and an investment-banking cost-to-revenue ratio of 62 percent in the first nine months, Papiasse said the bank could now steal market share from rivals.

UBS's cost-to-income ratio in investment banking is closer to 90 percent, while Credit Suisse's (CSGN.VX) is more than 80.

Among the growth areas being targeted, Papiasse cited corporate debt issuance, cash management and lending partnerships with institutional investors like insurers.

He also cited niche areas of trade finance, such as flows between China and the Middle East, where he said there were only four other serious competitors: Citigroup (C.N), Deutsche Bank, HSBC (HSBA.L) and Standard Chartered (STAN.L).

(Additional reporting by Matthieu Protard and Julien Ponthus; Editing by Helen Massy-Beresford and Mike Nesbit)

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