BNP Paribas wants to be Europe’s global investment bank
The European lender with the most ambitious plan to create a full-service, American-style global investment bank today is France’s BNP Paribas..
Tuesday’s fourth quarter results showed just how difficult that can be.
Continental Europe’s biggest bank by market value released decent headline numbers, flattered by falling loan losses. Revenues and earnings grew last quarter, creating a comfortable capital cushion of 12.9% and delivering a return on tangible equity of 10%. But BNP’s global markets division has tracked the performance of its US rivals in both revenue and earnings due to markets normalizing.
Investment banking has been the focus of French society, although they call it institutional banking or global markets. Last year it bought out its treasury research and equity joint venture with partner Exane and acquired Deutsche Bankit is
global prime brokerage and electronic equities unit. Together with the global equity derivatives group and the origination business of BNP, they have created something close to the type of full-service investment bank that is dominant on Wall Street.
The French group does not hope to face JPMorgan JPM 1.72%
or Goldman Sachs GS -0.06%
on their own turf, a strategy that had previously misled Deutsche Bank and other regional counterparts. Instead, it wants to be a European bank with international reach: the one-stop-shop for European businesses worldwide and the first port of call for North American and Asian businesses on the European continent.
During the first half of 2021, BNP was the European bank with the highest investment banking revenues in the Europe, Middle East and Africa region, ranking third overall behind two US rivals, according to data from Coalition. . The BNP hopes to maintain this position.
Last year, higher cash equities and prime brokerage earnings for BNP weighed against weakness in fixed income, but the investment bank underperformed its US peers. Going forward, a broader equities business could help it sell more products and increase its appeal to clients while mitigating inevitable stock market shocks.
BNP’s narrower equity derivatives business suffered significant losses due to sharp movements in the US market in 2018 and again in 2020, when a number of companies failed to pay dividends due to the pandemic. BNP hopes its recent expansion will pave the way for market share gains in a competitive market, even without taking on US companies in the US market.
The lender also unveiled its financial targets for 2025 on Tuesday, promising compound annual growth of 4% in global markets business, 3.5% in total revenue and 7% in group net profit. He promised a return on tangible equity of more than 11% in 2025 and a payout ratio to shareholders of 60%. This seems realistic given the group’s recent performance, and respectable for a European bank.
Historically, global investment banking has not been good business for European lenders, but BNP is a well-diversified bank taking calculated risk. This year and the next will offer the first real tests of its big strategic bet.
Write to Rochelle Toplensky at firstname.lastname@example.org
Copyright ©2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8