Escape to Germany
Even the mighty are shaken. The universal banking model of BNP Paribas helped it cushion the blow in the second quarter, but a near-40 percent year-on-year drop in corporate and investment banking pre-tax profit shows it is as vulnerable as others to fickle markets and depressed economies. This may be one of the reasons why it is planning a major push into Germany.
Even though the French lender’s results came in better than expected, it still bleeds when pricked. Ben Bernanke’s statements about the “tapering” of quantitative easing rocked BNP’s boat, with overall second-quarter CIB revenue down 2.4 percent year on year and more than 4 percent in fixed income, one of its strengths. At least its quarter-on-quarter fixed-income revenue was only down 14 percent – better than many of its peers – and BNP remains the leader of corporate bonds in euros.
BNP still makes more than 60 percent of its revenue in retail banking, and as such is exposed to the lacklustre economies of Italy and France. More than a fourth of the 1.1 billion euros of provisions last quarter were booked at Italian lender BNL. And 24 percent of its near-47 billion euro portfolio of euro zone sovereign debt is made up of Italian government bonds – an amount kept stable over the last year at 11.6 billion euros. The hope is that growth will indeed pick up in both Italy and France. Overall retail activities remained solid for now, with pre-tax profit up 12 percent over a year ago.
BNP’s balance sheet remains one of Europe’s strongest with fully-loaded Basel III core tier 1 at 10.4 percent. Its newly-published 3.4 percent leverage ratio is above the 3 percent threshold to become mandatory in 2018.
The bank will unveil a comprehensive action plan early next year, but without waiting has announced it wants to expand in asset management and bolster its presence in Germany with a near-40 percent revenue growth by 2016. The ambition to seduce the Mittelstand will no doubt be helped by BNP’s down-to-earth, dependable, no-frills approach to banking – values traditionally associated with Germany, even if not always with German banks in the last few years.