October 30, 2018 / 6:58 AM / 2 months ago

UPDATE 2-Investment banking weakness clouds BNP Paribas' results

* Q3 revenue dips to 10.35 bln euros

* Weakness at CIB and European retail bank units

* Q3 net profit rises 4 percent to 2.12 bln euros (Recasts, adds background, analyst comment)

By Inti Landauro and Matthieu Protard

PARIS, Oct 30 (Reuters) - A drop in revenue at BNP Paribas as its investment bank underperformed overshadowed a rise in third-quarter profit on Tuesday, sending shares in France’s biggest listed lender lower in early trade.

Paris-based BNP Paribas said that revenue fell 0.4 percent to 10.35 billion euros ($11.76 billion) in the quarter, below the 10.61 billion expected by analysts, although growth at the bank’s international financial services division contributed to an overall net profit rise of 4 percent to 2.12 billion euros.

Large European banks such as BNP Paribas and HSBC - which on Monday reported higher than expected earnings helped by cost-cutting - are seeking ways to boost profits at a time of rising fears about bad loans, Brexit, and ultra-low interest rates.

Last week, Deutsche Bank reported a sharp drop in third-quarter profit.

Shares in BNP Paribas fell 3.4 percent by 0809 GMT, having already lost around a quarter of their value so far in 2018.

Analysts at Jefferies wrote in a research note that BNP Paribas’ weaker than expected results highlighted the short-term pressures on the bank, although they kept a “buy” rating on the stock.

The bank’s operating expenses were up 2 percent in the quarter as it spent more in technological overhauls.

“However, the savings that will be generated going forward in the next year should tilt us back again in positive territory,” BNP Paribas’ Chief Financial Officer Lars Machenil said on Tuesday in a TV interview.

Revenues at BNP Paribas’ retail banks in France, Belgium and Italy remained weak as a result of persistently low interest rates, while revenue from its corporate and investment banking (CIB) unit fell again due to an adverse trading environment.

BNP Paribas’ fixed-income, foreign exchange and commodity trading were also slow despite a slight pickup in U.S. bond trading.

“We know revenues in (the investment banking) division can be volatile, but we couldn’t find any good surprise in the numbers today,” said Pierre Willot, a Paris-based fund manager at Montaigne Capital.

BNP Paribas said it expects trading on stocks to pick up in the fourth quarter as a result of market volatility.

BNP Paribas’ international financial services arm, which has been its growth engine in past quarters and includes consumer lending and U.S. and emerging market retail banks, was one of the group’s better performing units in the third quarter with a 4.3 percent revenue increase.

However, that unit’s performance nevertheless slowed down in the third quarter compared to previous quarters mainly due to the depreciation of the Turkish lira.

Despite the financial crisis in Turkey, BNP Paribas’s local Turkish business, TEB, remained profitable thanks to sky-high interest rates in the country. BNP Paribas increased provisions against bad loans in Turkey.

Rising interest rates in the United States boosted revenue from BNP Paribas’s local retail bank BancWest.

The 286 million euro capital gain made on the sale of a 30 percent stake in its other bank in the U.S., First Hawaiian, also gave a lift to BNP Paribas’ overall earnings.

BNP Paribas’ main rivals Credit Agricole and Societe Generale report third-quarter results next week.

$1 = 0.8788 euros $1 = 0.8801 euros Reporting by Inti Landauro and Matthieu Protard; Editing by Sudip Kar-Gupta and Louise Heavens

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