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Aug 1 (The following statement was released by the rating agency)
Fitch Ratings says that BNP Paribas' (BNPP; A+/Stable/a+) Q213 results displayed resilience. The results demonstrate the benefits from the bank's diversified franchise, which allows it to absorb weaker earnings in some of its businesses. At the same time, BNPP continued to strengthen its balance sheet and reported a solid Basel III 'fully applied' common equity Tier 1 (CET1) ratio of 10.4%, which is at the higher end of its peers among the global trading and universal banks. The bank's estimated CRD IV leverage ratio of 3.8% (including additional Tier 1 instruments) also compared well with European peers' estimates, and funding and liquidity remained adequate.
BNPP reported a EUR2.7bn Q213 pre-tax profit, adjusted for fair value of own debt changes (a EUR68m loss in Q213) and other small non-operating items, down 3% year-on-year but up 8% quarter-on-quarter. Lower operating expenses (-1% yoy) only partly offset declining revenue (-2% yoy) and higher loan impairment charges (LICs; +30% yoy, +13% qoq largely in corporate and investment banking; CIB). The bulk of BNPP's Q213 operating profit (excluding the EUR143m loss reported in the corporate centre) relate to retail banking (62%) and wealth management (20%) activities, which Fitch considers as relatively stable earnings sources.
BNPP's retail banking activities posted stable operating profit (-1% yoy and qoq). Revenue and operating expenses were broadly flat yoy, but LICs rose by 9% yoy, mainly in Italy (+28% at its main Italian subsidiary, BNL ) and in the Mediterranean basin (+18%). Fitch believes retail banking revenue is likely to remain sluggish due to the low demand for credit in some of BNPP's core markets (particularly in France) and stubbornly low interest rates.
BNL remained profitable (EUR80m operating profit in Q213 or -10% qoq) despite LIC increases since 2009 to 146bp of customer loans in Q213 (stable qoq) on an annualised basis. LICs in BNPP's two main retail markets, France and Belgium, remained low (24bp and 20bp of customer loans in Q213 on an annualised basis, respectively) and Fitch does not expect these markets to generate significantly higher LICs in the coming quarters. BNPP's Personal Finance division, which conducts the group's consumer finance operations, did not report any material increase in LICs (174bp of customer loans in Q213 on an annualised basis; 166bp in Q212 and 171bp in Q113, which appear high but are more than compensated by high net interest margins).
BNPP's CIB division, which includes its capital markets and corporate banking activities, posted a sound 13% annualised pre-tax return on allocated Basel 2.5 capital in Q213. However, pre-tax profit of EUR497m at CIB declined both yoy (-39%) and qoq (-38%) as Q212 results benefited from low LICs and revenue in Q113 was significantly higher.
The bank's advisory and capital markets business in CIB posted increased pre-tax profit, which was up 51% yoy but could not repeat the seasonally strong Q1 performance (-53% qoq). This quarterly decline was more pronounced than at most US and some European peers given the bank's focus on European business, where Q213 market activity was lower than in the US. The equities and advisory business (revenue +23% yoy) benefited from higher client transaction volumes in structured products in Europe and Asia, whereas fixed-income (revenue -4% yoy) suffered from strong volatility in interest rates in the second half of the quarter.
Pre-impairment operating profit from BNPP's financing business in CIB stabilised in Q213 (+5% qoq), but remained significantly lower than in 2012 due to the deleveraging plan and low client demand. LICs rose by 86% qoq, although Q113 levels were relatively low (26bp of customer loans in Q113 on an annualised basis; 48bp in Q213). LICs for this business are volatile by nature and can be affected by a small number of large exposures.
BNPP's investment solutions business, which comprises wealth and asset management activities as well as the insurance business, continued to perform well (operating profit +4% qoq and +5% yoy) and contributed to the diversification of the bank's earnings. The quarterly rise was exclusively driven by the securities services business, more than offsetting lower operating profit from asset management, which saw net new money outflows (EUR12.3bn), mainly in money market funds.
BNPP continued to strengthen its balance sheet during the quarter. The bank's 10.4% Basel III 'fully applied' CET1 ratio compares well with its US and European peers', and Fitch believes that the bank has flexibility to expand its franchise and seize growth opportunities. BNPP disclosed its Basel III 'look-through' CET1 leverage ratio (3.4% at end-June 2013), which also compares favourably with its European peers. BNPP's funding and liquidity remained adequate; its liquidity buffer rose to EUR236bn at end-June 2013, and covered 145% of the bank's short-term wholesale funding maturing within one-year (cash and deposits with central banks were equal to 54% of short-term wholesale funding).