* Underlying result beats expectations
* CFO: strong performance means clients not scared off
* First quarterly loss since 2008
(Adds Total saying will still deal with the bank))
By Andrew Callus and Matthias Blamont
PARIS, July 31 BNP Paribas' capital markets
business grew by a fifth in the second quarter - a signal
clients have shrugged off the U.S. sanctions busting affair that
pushed France's biggest bank to a second-quarter loss.
The 4.317 billion euro ($5.78 billion) loss, its first since
the 2008 financial crisis, was the result of a 5.95 billion euro
charge for a fine that was announced on June 30 after weeks of
speculation about the size of the penalty.
BNP Paribas also pleaded guilty on two criminal charges and
accepted a ban on certain dollar clearing activities that takes
effect in January - all in a settlement with U.S. authorities
for breaking U.S. sanctions against Sudan, Cuba and Iran over a
10-year period up to 2012.
It was the biggest fine to date for such violations and the
largest ever U.S. fine against a European bank - one of a series
of big fines handed out by U.S. prosecutors to the banking
industry in recent months.
The fine - which Chief Executive Jean-Laurent Bonnafe said
had been paid in full - overshadowed an otherwise strong and
better than expected second quarter for France's top listed
"Overall, these are a solid set of results demonstrating
that the U.S. litigation has not materially impacted the group's
performance," said analysts at Espirito Santo investment bank,
who have a "neutral" rating on the stock.
BNP's corporate and investment banking division turned in a
particularly strong performance, with revenue in its capital
markets division up 22 percent - a performance deemed noteworthy
by Chief Financial Officer Lars Machenil.
"If you reflect back, the majority of the elements related
to the comprehensive settlement announced on June 30 were in the
public domain as of June," he told Reuters Insider TV in an
interview. [ reut.rs/1odfyZE ]
"That basically reflects that the bank is solid and that
basically its clients have been supportive over that period.
They acknowledge that we regret what has happened, that we have
reached a settlement, and that in particular we have taken
Shares in BNP Paribas, which has slipped down the ranking of
world banks by market value since its problems with U.S.
authorities came to light in February, were little changed on
Thursday, up 0.4 percent at 50.05 euros at 0940 GMT.
Excluding the charge, which came on top of the $1.1 billion
provision already taken for U.S. litigation earlier this year
and included a 200 million euro sum for remediation costs, BNP
Paribas' group net profit was 1.9 billion euros compared with a
mean analyst forecast of 1.53 billion according to
In the first quarter, net profit was 1.668 billion euros and
a year ago it was 1.765 billion.
Revenue fell 2.3 percent as the euro zone's fragile exit
from recession, record low interest rates and a fall in
fixed-income trading hit both retail and investment banking.
DOLLAR CLEARING BAN
Machenil would not be drawn on the impact of the one year
ban on some dollar clearing activities which begins in January
and affects transactions in the oil and gas business which was
behind the sanctions-busting.
Under the terms of the settlement, BNP will have to clear
all its dollar transactions in New York, under supervision, and
any oil and gas related business landing there will be forwarded
to a correspondent bank for clearing.
"That is on a sliver of our activities," he said. "It takes
time to set up, and that is why we have negotiated time to do
At least one major oil and gas client said it was keeping
its business with BNP despite the restrictions.
"We have in no way changed our relationship with BNP
Paribas," said Patrick de La Chevardiere, the finance chief of
top French oil company Total.
"We are just waiting for them to explain how they will do
the clearing on our operations during the period they are
banned... The group has completely kept its confidence in BNP."
Although the bank has settled through the fine, the ban and
other measures, U.S. investigations are continuing into what
individuals at the bank may have done.
But Machenil downplayed the potential for this to overshadow
the bank in future.
"The bank has reached a comprehensive settlement with the
U.S. authorities," he said. "As long as the bank performs all
the remediation steps, that basically settles the matter. For
all other elements I would have to refer you to the U.S.
Regarding the potential impact of western sanctions on
Russia, Machenil said BNP Paribas had limited exposure at group
level to Russia and no retail activities there.
"Of course as embargoes unfold we will abide by those
embargoes," he said, but added: "we have very limited exposure,
which is typically in collateralised kind of activity."
(1 US dollar = 0.7468 euro)
(Additional reporting by Sudip Kar-Gupta, Blaise Robinson and
Michel Rose; editing by Tom Pfeiffer)