BNP Paribas 4th-Quarter Net Falls 33% on Italy Writedown

BNP Paribas SA, France’s largest bank, posted a 33 percent decline in fourth-quarter profit, missing estimates, on a goodwill writedown at its Italian branch network and an accounting charge tied to its own debt.

BNP Paribas, led by Chief Executive Officer Jean-Laurent Bonnafe, booked 345 million euros of impairments, including a 298 million-euro goodwill writedown at its Rome-based Banca Nazionale del Lavoro unit. The bank announced plans to reduce its annual cost base by 2 billion euros by 2015, while also hiring 1,300 staff at its corporate- and investment-banking and money management units in Asia over the next three years.

“We are in a process to invest a lot to modernize the group and to improve the efficiency quite dramatically,” said Bonnafe, 51, in an interview with Bloomberg Television.

BNP Paribas shares advanced 34 percent to 45.85 euros in the past 12 months in Paris trading, giving the bank a market value of about 57 billion euros. That compares with a 14 percent gain in the Bloomberg Europe Banks and Financial Services Index of 40 companies.

Dividend Increase

The lender plans to increase its dividend to 1.50 euros a share from 1.20 euros a year earlier, it said. Societe Generale SA, which yesterday reported a 476 million-euro fourth-quarter net loss after a goodwill writedown and 300 million euros of legal provisions, plans a payout of 45 cents a share after paying no dividend the previous year.

Credit Agricole SA, France’s third-largest bank, also said on Feb. 1 it will book 2.68 billion euros of fourth-quarter goodwill writedowns to reflect stricter rules and a worsening economy. The bank is scheduled to report earnings on Feb. 20.

The impairments come after the European Securities and Markets Authority called last month for improvements in disclosures following a review of 800 billion euros of goodwill assets at 235 companies in 23 countries across Europe. Goodwill is an accounting convention that represents the amount paid for an acquisition over and above the fair value of its net assets.

BNP Paribas also booked 286 million euros in costs from the revaluation of its own debt, compared with a 390 million-euro gain a year before. Banks book accounting charges or gains tied to the theoretical cost of buying back their own debt as market prices fluctuate.

Deutsche, Barclays

The lender posted net income even as competitors such as Deutsche Bank AG, Barclays Plc and Societe Generale reported losses on reorganization costs and litigation expenses.

Pretax profit at BNP Paribas’s corporate and investment bank rose to 266 million euros from 46 million euros in the fourth quarter, short of analysts’ estimate of 524 million euros. The unit’s bad-loan provisions almost tripled to 206 million euros because of money set aside “for one specific loan,” the bank said, without giving further details.

BNP Paribas had “weak client business at the end of the year in capital markets,” it said on its website. Excluding the impact of 2011 losses from selling sovereign bonds, fixed-income revenue fell 4.8 percent in the fourth quarter from a year earlier while equities and advisory sales declined 21 percent, it said.

Securities firms have posted gains in revenue since European Central Bank President Mario Draghi’s July pledge to do “whatever it takes” to defend the euro boosted bond markets. BNP Paribas last year carried out most of an announced 1,400 corporate- and investment-banking job cuts and, by September, reduced the division’s risk-weighted assets by 45 billion euros.

Corporate Deposits

In 2012, BNP Paribas also increased deposits from mid-size and large corporate clients by 18 percent to 55 billion euros. The company operates about 140 “business centers” in cities from Lisbon to Kiev to provide international firms with cash- management, lending and market advice. It has said collecting deposits is “at the heart” of its corporate banking strategy.

Deposit inflows help European lenders bolster liquidity as new international standards come into play. Global central bank chiefs last month gave lenders four more years to comply fully with liquidity rules. Banks in the European Union may need to meet the requirements before rivals in other parts of the world, according to a document obtained by Bloomberg.

BNP Paribas has reached higher capital levels under Basel III rules than peers, including Frankfurt-based Deutsche Bank, as European securities firms cut assets and jobs.

Asia Hiring

BNP Paribas’s core Tier 1 ratio under Basel III rules hit 9.9 percent at the end of December, up from 9.5 percent three months earlier. Societe Generale, France’s second-largest bank by market value, yesterday confirmed that it intends to reach between 9 percent and 9.5 percent by the end of this year.

BNP employs about 8,000 people in the Asia-Pacific area at its corporate- and investment-banking and investment solutions businesses. It plans to hire about 1,300 people in the region over the next three years to work at these businesses, which should have annual revenue growth of 12 percent through 2016 in Asia, the bank said.

The bank, which took 3.2 billion euros in writedowns on Greek government debt in 2011, has rushed to cut its sovereign debt holdings in most European countries since mid-2011 to help protect capital levels.

Both BNP and Credit Agricole operate Italian branch networks. French banks held $494 billion in private and public debt in Greece, Ireland, Italy, Portugal and Spain at the end of September, Bank for International Settlements data show.

Italian Loans

BNL, BNP’s Italian retail-banking network, had fourth- quarter pretax earnings of 68 million euros, down 42 percent from a year earlier and below analysts’ estimates for 91 million euros. BNP Paribas, which acquired BNL in 2006 for 9 billion euros, took 283 million euros in bad-loan provisions at the unit, a 39 percent increase from a year earlier.

“The improvement of BNL’s profitability remains a question mark,” Cyril Meilland, an analyst at CA Cheuvreux in Paris, said in an interview before the earnings release.

“Provision levels in Italy are probably going to remain high for several quarters.”

The Italian unit’s bad-loan provisions in the fourth- quarter represented about 24 percent of BNP Paribas’s total money set aside for doubtful loans. BNP also took the goodwill depreciation on BNL because of an expected increase in Bank of Italy’s capital requirements, with local common equity Tier 1 rising to 8 percent from 7 percent, the French bank said.

‘Nothing Dramatic’

The increase in BNL’s bad-loan provisions is “nothing dramatic,” Bonnafe told Bloomberg Television. “BNL is to stay a profitable operation.”

BNP’s retail-banking pretax profit was 1.36 billion euros in the fourth quarter, up 2 percent from a year earlier, helped by rising earnings in markets including Turkey, according to the bank’s statement. Earnings at the French branch network fell to 377 million euros from 395 million euros a year earlier, while Belgian consumer-banking pretax profit dropped 8.3 percent to 144 million euros.

(Source: Bloomberg)