Fitch: BNPP's Q113 Earnings Lower; Capital Solid

Fri May 3, 2013 12:00pm EDT

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(The following statement was released by the rating agency) PARIS/LONDON, May 03 (Fitch) Fitch Ratings says that BNP Paribas' (BNPP) Q113 results are satisfactory. Operating profit from corporate and investment banking (CIB) was lower yoy, but higher from the bank's Investment Solutions division (asset and wealth management, insurance) and stable in retail banking, highlighting the importance of the bank's diversified franchise. Q113 earnings also showed continued progress on capital as the bank reported one of the strongest look-through Basel III common equity tier 1 (CET1) ratios among its peers, and its liquidity buffer increased further. Operating profit, excluding certain items such as revaluation of own debt and debit valuation adjustment (a combined EUR149m gain in Q113), dropped 20% year-on-year and amounted to EUR2.5bn in Q113, but increased by 44% quarter-on-quarter. The bank's net income was much lower than Q112 levels (-45%), largely due to a significant one-off item last year (capital gain on the sale of part of its stake in its real estate subsidiary Klepierre; EUR1.8bn pre-tax positive impact). Operating profit from the retail banking business, which is BNPP's main earnings contributor, was stable yoy at EUR1.7bn. Retail revenue slightly fell yoy (-0.8%), given the relatively low demand for credit (outstanding housing loans declined in France and in the Personal Finance division at end-Q113 yoy) and still low interest rates. While this negative operating environment is unlikely to improve in the short term, Fitch considers BNPP's work on costs is starting to pay off as operating expenses fell by 4.8% yoy for the group and 3.2% yoy for retail business, and should help partly offset pressure on revenue. As a result, the pre-impairment operating result for the retail division rose 3% yoy. The rise in loan impairment charges (LICs) was contained (+8% yoy, -12% qoq), and largely related to BNPP's Italian subsidiary BNL, whose LICs reached 145bp of customer loans in Q113 on an annualised basis (106bp in Q112, 137bp in Q412), but Italian operations remained profitable. LICs in France and Belgium, BNPP's two main retail markets, remained low (22bp and 10bp respectively in Q113) and Fitch does not expect these markets to generate significantly higher LICs in the coming quarters. Fitch considers BNPP's diversified retail franchise to provide flexibility to absorb problems through earnings. Q113 operating profit from CIB declined compared with the prior year period (-31% to EUR0.8bn), although this was also the case at peers. This followed a particularly profitable Q112 for BNPP and its peers, particularly in fixed-income given healthy rate and money markets helped by the LTRO. Q113 revenue from fixed-income and equity/advisory activities both suffered from lower client activity (-27% and -20% revenue fall yoy), but BNPP's revenue suffered more than many of its European and US peers. Revenue from financing activities (-18% yoy, excluding impact from asset sale) was affected by the bank's deleveraging plan and continued low client demand. Nonetheless, BNPP's focus on cost has allowed the bank to maintain satisfactory cost efficiency at its CIB division (65% cost/income ratio in Q113). Moreover, performance as measured by pre-tax return-on-equity (22%) was sound and not far from the European best performers in Q113. CIB profitability tends to benefit from seasonality effects as Q1 has traditionally been the best quarter of the year in terms of revenue, and Fitch does not expect revenue at BNPP and its peers to remain at Q113 levels in coming quarters. BNPP's investment solutions business continued to perform well in Q113, benefiting from improved market performance and positive net new money (+EUR3bn qoq). Operating profit rose by 8% yoy. BNPP's fully-loaded Basel III CET1 ratio (10%) is among the strongest compared with peers. Fitch's ratings of BNPP incorporate the assumption the bank will maintain solid capital ratios. The bank's healthy and recurring profitability gives it the flexibility to retain earnings to strengthen capital. Fitch does not expect BNPP to materially increase its capital ratios in the near term as it has already exceeded its target. BNPP's liquidity buffer increased to EUR231bn at end-Q113 (EUR221bn at end-2012), and more than covered the bank's one year short-term wholesale funding (EUR168bn at end-Q113). The portion of cash and deposits with central banks declined in proportion with the fall in short-term wholesale funding qoq. BNPP indicated it started to pay back funds received from the ECB's LTRO. Contact: Alain Branchey Senior Director +33 1 44 29 91 41 Fitch France S.A.S. 60 rue de Monceau 75008 Paris Francois-Xavier Marchand Associate Director +33 1 44 29 91 46 Media Relations: Francoise Alos, Paris, Tel: +33 1 44 29 91 22, Email: francoise.alos@fitchratings.com; Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. Additional information is available at www.fitchratings.com. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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