BNP Paribas exceeds expectations in the second quarter and records a positive jaw effect – 29/07/2022 at 08:21

(AOF) – First French bank to disclose its accounts, BNP Paribas reported better-than-expected second quarter results. Net income, a group share, increased 9.1% to 3.18 billion euros when it was forecast at 2.7 billion euros, according to an informal consensus quoted by Reuters. BNP Paribas benefited from a positive jaws effect of 0.9 points. The brokerage margin, equal to 12.781 billion euro, increased by 8.5% while management fees increased to a lesser extent: + 7.6%.

Corporate & Institutional Banking (CIB) revenues stand out with an increase of 10.6%. BNP Paribas explains this dynamism with “the crystallization of market share gains and the acceleration provided by the strategic reinforcements implemented in 2021 and 2022, in particular in the Equities and Securities Services activities”.

The cost of risk also decreased by 3% to 789 million euros and stood at 33 basis points of outstanding customer loans. This is 100 million euros below market expectations.

At 30 June 2022 the “common equity Tier 1” or core capital ratio was 12.2%.

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Key points

– Bank founded in 1822, strengthened in 1999 by the merger with Paribas, 1st in France and 7th in the world;

– Net banking result of € 46.26 billion generated by international financial services (34%), banking networks (35%) and investment banking (31%);

– Commitments over 80% in “rich” countries: France for 32%, Belgium and Luxembourg for 16%, Italy for 9%, other European countries for 19%, North America for 13%, Asia- Pacific for 6%;

– Business model based on the diversification of offices and companies, synergies and cooperation between companies, on operational and customer innovation;

– Capital held by the Belgian State (7.7%), the Grand Duchy of Luxembourg (1%) and employees (4.4%), with a 13-member board of directors chaired by Jean Lamierre, of which Jean-Laurent Bonnafé he is chief executive officer;

– Solid financial position – CET 1 ratio of 12.4%, return on equity of 13.4% and liquidity of € 468 billion.

Challenges

– GTS 2025 plan for growth, technology and sustainability aimed at:

– Return on equity of 11%, annual growth of 3.5% in NBI, self-financing of transformation and investments and distribution rate of 60%, of which at least 50% in dividends:

– Top rated innovation strategy in the sector and focused on digitization:

– internally: support for entrepreneurs (Lux Future Lab, People’sLab4Good, Bivwak),

– in the offer to customers: 4.4 million “digital” customers, leader in France in digital functions, world leading platforms in government bonds, forex or swaps and among the top five European neo-banks with Hello Bank !,

– partnership: Plug and Pay global platform for the acceleration of start-ups;

– Environmental strategy with the aim of becoming the world leader in sustainable finance (2nd in the world in green bonds and 1st in Europe, 1st in Europe for the financing of renewable energy projects):

– carbon neutrality target in 2050,

– by 2025, € 350 billion mobilized in sustainable loans and bonds and € 300 billion in sustainable investments;

– alignment of the loan portfolio to the trajectory of the Paris agreement (end of coal financing in 2030 in Europe and dissemination of the Pacta methodology),

– progress in green microfinance,

– € 4 billion funding for biodiversity;

– Towards a joint venture with the financing subsidiary of Stellantis, operating in Germany, Austria and the United Kingdom.

Challenges

– Change in net book assets, € 78.7, to be compared with the stock market price;

– Continuous control of management fees and cost of risk;

– Russia-Ukraine war: very marginal impact – amortization of the Ukrainian subsidiary – and interruption of services to Russian customers;

– Use of funds from the sale of the American subsidiary BoW – € 14.4 billion divided between the share buyback program, investments in technologies and targeted acquisitions;

– After a dynamic 1st quarter, confirmation of the 2025 objectives;

– Share buyback programs and 2021 dividend of 3.67 euros, or 50% of the profit.

The negative effects of rising interest rates

Rising interest rates usually cause bank income to increase through loans. In Europe, according to a survey conducted by S&P of 85 banking institutions, the sector expects an average increase of 18% in the interest margin. However, this new inflationary environment also has undesirable effects, notably an increase in refinancing costs. It is also accompanied by the fear of a new recession, which would then affect all the bank’s activities, from loans to asset management, whose income is correlated to market valuations. Reassuring element: euro area banks are strong enough to cope with a deteriorating environment.

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