BNP adds to Europe investment banking cheer

LONDON, Nov 5 (Reuters) - France's BNP Paribas (BNPP.PA) posted its best investment banking profit for two and a half years on Thursday, helped by lower bonus payouts and a land grab from rivals still wounded by the financial crisis.

BNP joined Credit Suisse (CSGN.VX) in Europe and JP Morgan (JPM.N) and Goldman Sachs (GS.N) in the United States in beating expectations with strong investment bank profits. [ID:nL5376223] They are expected to be joined by Barclays (BARC.L) next week.

BNP and Credit Suisse also benefited from lower payments to staff in the third quarter -- mostly due to a seasonal fall in revenue from a buoyant previous quarter, but also evidence that shifts in bonus structures will feed through to banks' bottom line.

BNP, the eurozone's second-largest bank, said costs in its corporate and investment banking (CIB) unit were down 24 percent in Q3 from Q2, as it shifts to more deferred payments for staff.

CIB's costs were up 13 percent from a year earlier, but that was well below a 43 percent rise in revenues, which bonuses have traditionally been tied to.

Its Q3 revenue dipped 12 percent from the previous quarter and profit rose 8 percent to 1.2 billion euros, ahead of forecast and its highest since Q1 2007. It was achieved while the bank significantly reduced its exposure to market risks.

Strong investment bank profits have helped many of the world's leading banks to post higher profits in recent weeks, countering rising bad debts from retail banking as economies remain fragile and unemployment rises. [ID:nLL554769]

Several banks are reaping trading windfalls as central banks pump billions of euros into the financial system. Goldman led the charge, quadrupling profits to $3 billion.

In Europe, Credit Suisse's investment bank's Q3 pretax profit was 1.7 billion Swiss francs and Deutsche Bank's (DBKGn.DE) CIB arm made a 1.2 billion euro profit.

Barclays (BARC.L) has said Q3 profits will be about 1.5 billion pounds, continuing a strong first half, fuelled by Barclays Capital. It reports on Tuesday, a day after UK rival HSBC (HSBA.L) is expected to show strong wholesale profits after a record first half.

UBS continues to struggle, however, showing an overhaul of its business will take time. Societe Generale's (SOGN.PA) investment bank swung back to profit but failed to match the heights set by rivals.

Fixed income business has slowed from the first half as margins narrow, but BNP's 20 percent quarterly revenue drop was better than expected, helped by rates and credit product revenues, analysts said.

BNP has benefited from the boom in corporate debt market volumes. It has already underwritten 82 billion of bonds in euros this year, up from 58 billion for all of 2008 and taking top spot from Deutsche Bank. In addition to the volume rise, the fees that borrowers pay are also up, by between 25-30 percent, bankers said.

BNP's equity revenues dipped 13 percent on the quarter, but it and rivals have seen strong business in convertible or exchangeable bonds.

(Reporting by Steve Slater and Alex Chambers; Editing by David Cowell)