* U.S. prosecutors considering criminal charges -source
* BNP will not buy back shares at current valuation -CFO
* Q1 net profit up 5.2 pct after Fortis unit buyout
* Shares down 3.8 pct, underperform sector
(Adds source confirming larger penalty, timing of settlement)
By Lionel Laurent and Matthias Blamont and Aruna Viswanatha
PARIS/WASHINGTON, April 30 French bank BNP
Paribas has warned it might be hit with a fine far in
excess of the $1.1 billion that it set aside last year to cover
litigation costs linked to potential breaches of U.S. sanctions
on countries including Iran.
An eventual settlement is likely to be closer to $2 billion,
and also will likely involve a guilty plea, a person familiar
with the matter said.
The person declined to say whether the bank itself or one of
its units would be required to plead guilty to criminal charges.
A plea at the parent company level could more severely constrain
the bank's ability to do business in the United States.
A settlement could come in the next month, the person, who
spoke on condition of anonymity, said.
The warning from France's biggest bank comes as the global
banking industry faces mounting legal woes due to investigations
into a string of alleged misdeeds, including fixing benchmark
interest rates and manipulating foreign-exchange markets.
A big U.S. fine could have ramifications for BNP beyond the
immediate financial hit, as the bank is targeting expansion in
North America as a key plank of a new strategy to raise revenue
and profits outside traditional European markets.
"There is uncertainty with respect to the amount and the
nature of penalties the U.S. will impose," Chief Financial
Officer Lars Machenil told Reuters Insider television. "It's not
impossible that the fine is far in excess of the ($1.1 billion)
Asked if the fine could reach $2 or $3 billion, BNP's
Machenil told Reuters Insider: "There is nothing more to say."
Machenil told analysts on a conference call that the bank
had already set aside around 2.7 billion euros ($3.73 billion)
for litigation costs, including the specific $1.1 billion
His comments came after BNP posted a higher-than-expected
5.2 percent rise in first-quarter net income.
Shares in the bank were down 3.8 percent at 53.80 euros by
1434 GMT, having fallen as low as 53.55 euros, not far from
their lowest of the year so far. The European banking sector
was down 0.8 percent.
U.S. federal prosecutors are considering criminal charges
against BNP for doing business with countries subject to U.S.
sanctions, such as Iran, Sudan and Cuba, a second person with
knowledge of the matter has said. The New York Times first
reported the potential charges.
Regulators may consider suspending the bank's ability to
conduct dollar clearing in New York - the process by which
transactions are quickly settled and cleared within the banking
system - and are looking at possible penalties for individual
employees, the person said.
The head of the New York Department of Financial Services,
which is investigating BNP over sanctions violations, said last
month his office is, in general, considering penalties including
banning certain banks from dollar clearing transactions for
specific time periods, but declined to name specific banks.
BNP declined to comment. The bank has said it wants North
America to account for 12 percent of revenue by 2016, up from 10
percent in 2013, and wants to improve cross-selling between its
U.S. investment bank and retail bank unit BancWest.
"The risk is that some form of operational sanction may
undermine the bank's ability to meet these targets," analyst
Jean-Pierre Lambert at brokerage Keefe, Bruyette & Woods said.
"There does not seem to be a serious likelihood that BNP
will lose its banking license outright, but there may be
consequences for its current activities if its ability to clear
U.S. dollar transactions is limited," Lambert said.
Past U.S. settlements have ensnared rivals such as Standard
Chartered, which agreed in 2012 to pay $327 million to
resolve allegations that it violated U.S. sanctions against
Iran, Sudan, Burma and Libya. The bank was separately fined $340
million by New York's banking regulator over Iranian sanctions.
Meanwhile BNP's results showed the effects of its full
takeover of Belgian subsidiary Fortis last year, which helped
offset writedowns on assets exposed to the Ukraine crisis and
rising loan losses in Italy.
The bank has a robust capital base relative to peers, with a
core Tier 1 ratio of 10.6 percent at end-March. Machenil said
BNP has "excess capital" but would not use this to buy back
shares at their current valuation.
($1 = 0.7237 Euros)
(Additional reporting by Supriya Kurane in Bangalore; Editing
by Erica Billingham; editing by Andrew Hay)