French bank BNP targets cost cuts as economy weakens

PARIS Thu Feb 14, 2013 8:20am EST

BNP Paribas bank Chief Executive Officer Jean-Laurent Bonnafe attends the presentation of the bank's 2012 annual results in Paris February 14, 2013. REUTERS/Christian Hartmann

BNP Paribas bank Chief Executive Officer Jean-Laurent Bonnafe attends the presentation of the bank's 2012 annual results in Paris February 14, 2013.

Credit: Reuters/Christian Hartmann

PARIS (Reuters) - BNP Paribas (BNPP.PA) said a three-year efficiency drive would bring annual cost savings of 2 billion euros ($2.69 billion) and it would ramp up growth in Asia after fourth-quarter profits were hit by Europe's weak economy.

BNP is relatively robust and well-capitalized after spending a year paring its balance sheet and reducing holdings of risky euro zone sovereign debt.

But France's biggest listed bank is still heavily exposed to mature European markets and is under pressure to show investors new paths to growth.

BNP said on Thursday the savings would come from simplifying its reporting structure and investing in better technology, which would cost a total of 1.5 billion euros. It said none of its businesses would be shut down.

The announcement lifted BNP's shares 2.9 percent, outperforming a flat STOXX Europe 600 banks index .SX7P and offsetting the bank's weaker-than-expected quarterly results.

Investors penalized its arch-rival Societe Generale, which posted a fourth-quarter loss on Wednesday without giving a target for cost cuts. SocGen (SOGN.PA) shares fell 3.4 percent.

"BNP has an attractive story for the market now," said Yohan Salleron, a fund manager at Mandarine Gestion in Paris. "It's going to be hard to offset weakness in Europe in the short term... But at least we are being given a long-term plan."

BNP said it was eyeing expansion in Asia, where it wants to lift revenue from investment banking and its asset-gathering Investment Solutions division to over 3 billion euros ($4 billion) by 2016 from 2 billion in 2012. It also plans to hire 1,300 people in the region through to 2015.

"We see a low-growth scenario in Europe (in 2013)," BNP Chief Executive Jean-Laurent Bonnafe told Reuters Insider television. No acquisitions were planned for now, he said.

Like SocGen, BNP has avoided the kind of radical job cuts and product exits seen at Switzerland's UBS (UBSN.VX) and Britain's Barclays (BARC.L). Analysts say it could lift pre-tax profits by 15 percent if its cost plans are successful.

A union source had flagged BNP's cost drive last month, without saying how much it planned to save.

ITALIAN TROUBLE SPOT

BNP reported a one-third drop in net profit for the fourth quarter of 2012, to 514 million euros. Analysts had been expecting closer to 1.0 billion, according to a Thomson Reuters I/B/E/S average forecast.

Among the trouble spots were Italy - where BNP took a 300 million-euro goodwill write-down on its BNL subsidiary in an effort to raise its capital strength - and investment banking, where a rebound in revenues was hampered by a rise in loan losses tied to one unidentified loan.

BNP said it would propose a cash dividend of 1.50 euros per share and said its focus on balance-sheet strength in 2012 had lifted its Basel III Core Tier 1 Ratio to 9.9 percent in December from 8.9 percent in June.

Asked whether BNP might seek to grow in Italy with an investment in scandal-ridden bank Monte Paschi (BMPS.MI), BNP's Bonnafe said no acquisitions were planned and that BNP had never been contacted on the subject of Monte Paschi.

RETAIL CUTBACKS

Half of BNP's planned 2 billion-euro savings will come from retail banking, where cuts are seen as long overdue now that an economic slowdown and state austerity measures have started to hit core markets like France.

Profits at the bank's French, Belgian and Italian retail operations fell in the fourth quarter, with growing loan losses in Italy almost halving BNL's earnings before tax.

The French economy shrank 0.3 percent in the final three months of 2012, preliminary national figures showed on Thursday, as companies cut back on investment and exports flagged.

Italy's economy also contracted more than expected, extending the longest recession in 20 years.

A third of the savings will come from BNP's corporate and investment bank, which has borne the brunt of cuts since a flare-up in the euro zone crisis in 2011 pushed once-cheap market funding out of its reach.

The unit will focus on growth in the United States and Asia and will further develop its fixed-income platform after a boom year for bond markets.

Asked whether the savings could be made without cutting jobs, BNP's Bonnafe said: "We'll see". He said that the bank was always monitoring staffing levels and would prioritize moving staff to other divisions over straight reductions.

(Editing by Helen Massy-Beresford and Tom Pfeiffer)

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