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M&A machine learning

31 July 2015 By Dominic Elliott

BNP Paribas’ acquisition engine is powering its growth. The trick is to keep the benefits of expansion without the kind of sprawl-induced malfunction that has hurt rivals.

The French bank’s active merger machine helped it crank out resurgent second-quarter earnings. They rebounded to 2.6 billion euros ($2.84 billion) from a 4.2 billion euro loss a year ago, following a U.S. mega-fine for sanctions-busting. Revenue growth in the three months to June benefited from last year’s acquisitions of German online broker DAB Bank, consumer finance group LaSer and Polish bank BGZ.

Continental Europe’s largest lender by assets has continued to expand through deal-doing. This year, it has added GE Capital’s European car leasing division to its business mix, and confirmed plans to buy Indian retail brokerage Sharekhan.

BNP’s acquisitions since the financial crisis have been focused. Chief Executive Jean-Laurent Bonnafe has stuck to familiar climes: DAB was founded by former employees of what is now a subsidiary of BNP; the French bank already had a foothold in the Polish market at the time it pounced on BGZ; and it already owns a stake in rival Indian retail brokerage Geojit.

Hubris remains a risk. That was investors’ sorry experience with Royal Bank of Scotland boss Fred Goodwin, who stretched for ever-bigger deals. There are also the pitfalls in failing to assimilate businesses properly, as HSBC, Citigroup and others have found. Credit Suisse took five years to integrate Swiss private bank Clariden Leu, which brought with it practices that led to the Swiss bank’s guilty plea for aiding U.S. tax evasion.

If BNP Paribas keeps performing as it is now, investors may be happy to overlook the risk of overreach. But with all of the bank’s divisions growing, it could equally be a good time for profit taking. BNP stock traded close to 60 euros a share on July 31. That is still below the average 68 euros per share the Belgian state paid for a 10.25 percent holding in the wake of Fortis’ bailout. But in the interest of risk management, this might be a good time for Brussels to start trimming its stake.

 

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