(Updates with analyst comment in fourth paragraph, shares in fifth.)
Oct. 31 (Bloomberg) -- BNP Paribas SA, France’s largest bank, unexpectedly posted an increase in third-quarter profit as it set aside fewer provisions for bad debt and pared costs. The shares rose.
Net income climbed 2.4 percent to 1.36 billion euros ($1.86 billion) from 1.33 billion euros a year earlier, the Paris-based bank said in an e-mailed statement today. That beat the 1.19 billion-euro average estimate of six analysts surveyed by Bloomberg.
BNP Paribas is setting aside fewer provisions for non- performing loans as the euro region’s economy emerges from a record-long recession. That’s helped offset lower revenue from consumer banking and fixed-income trading as clients pulled back amid speculation over the Federal Reserve’s reduction in bond purchases.
“In the current environment, it’s solid results,” Alex Koagne, a Paris-based analyst at Natixis SA who recommends buying BNP’s shares, said by telephone. “The drop in provisions sustains earnings and above all they are ahead of schedule in their plan of costs reduction.”
BNP climbed as much as 2.8 percent in Paris trading, the biggest increase in three weeks. The shares rose 2.3 percent to 53.96 euros at 9:24 a.m., valuing the company at 67.2 billion euros. Gains this year were 27 percent, outpacing an advance of 18 percent for the Bloomberg Europe Banks & Financial Services Index.
The bank set aside 892 million euros for bad loans in the third quarter, 5.5 percent less than a year ago and 20 percent less than the previous three months, it said. That beat analysts’ average estimate of 1.05 billion euros.
The bank has achieved more than a quarter of its 2015 goal of cutting 2 billion euros in annual expenses, it said today. Operating expenses fell 2.1 percent in the third quarter from a year ago to 6.43 billion euros. Costs at operating divisions, at constant scope and exchange rates, climbed 0.6 percent in the period, BNP said.
Chief Executive Officer Jean-Laurent Bonnafe, 52, who has announced plans to expand in Asia, Germany and in online banking and asset-management, will publish a three-year development plan early next year setting out the bank’s strategy.
Pretax profit at the corporate and investment bank, which includes trading and corporate finance, dropped less than analysts estimated. Profit fell 24 percent to 552 million euros from a year ago compared with an average estimate for a profit of 523 million euros. While sales from fixed-income trading dropped 27 percent to 780 million euros, equities and advisory revenue rose 14 percent to 484 million euros, BNP said.
Fed Chairman Ben S. Bernanke said in May that the central bank may begin tapering the $85 billion in monthly bond purchases it has conducted to help boost the economy.
BNP joins Germany’s Deutsche Bank AG and U.S. securities firms such as Goldman Sachs Group Inc. in reporting a decline in fixed-income trading.
French banks “should temper” the slowdown in revenue as the fixed-income business represents a smaller slice of their total revenue compared with European rivals, Citigroup Inc. analysts including London-based Kinner Lakhani said in a report this month.
BNP and Societe Generale SA, France’s second-largest bank by market value, saw 11 percent of total revenues in the first half coming from trading bonds, currencies and commodities, the Citigroup analysts said. That compares with 29 percent of revenue at Deutsche Bank and 25 percent at Credit Suisse Group AG, they said.
Deutsche Bank, Europe’s biggest investment bank by revenue, said this week that sales from trading debt and other products fell 49 percent in the third quarter from a year ago. The five biggest U.S. investment banks saw their combined revenue from trading fixed income, currencies and commodities slide 25 percent in the period, according to data from Bloomberg Industries.
BNP Paribas’ common equity Tier 1 capital adequacy ratio under fully applied Basel III standards, a key measure of financial strength, rose to 10.8 percent at the end of September from 10.4 percent three months earlier.
“On the back of a rock-solid balance sheet with very high solvency and as liquidity reserves further increased, the group continues to prepare the 2014-2016 business development plan,” Bonnafe said.
BNP Paribas’ consumer banking pretax earnings were 1.52 billion euros in the third quarter, 9.2 percent lower than a year ago. Revenue at its U.S. Bancwest retail branches fell about 10 percent 556 million euros, hurt by the unfavorable rates environment although lending and deposits rose from a year ago, the bank said.
Pretax earnings at BNP’s French consumer bank were almost unchanged at 459 million euros in the quarter, missing the 482 million-euro analysts’ average estimate. In Belgium, where BNP Paribas’ consumer-banking unit is closing 150 branches by 2015, third-quarter pretax earnings rose 2.2 percent from a year earlier, according to the earnings data.
While Europe’s economic downturn is weighing on BNP’s key euro-area markets -- France, Italy and Belgium -- the bank is seeking to capture more clients in faster-growing economies. The firm said in July that it plans to increase the workforce by 500 people across its businesses in Germany, where it employs about 3,500 people, to achieve annual revenue of 1.5 billion euros by 2016.
BNP is also hiring about 1,300 people over three years at its corporate- and investment-banking and investment-solutions businesses in the Asia-Pacific region. The bank foresees annual revenue growth of 12 percent through 2016 in Asia, it said in February.
Pretax profit at BNP Paribas’ investment-solutions unit, which includes asset management, private banking and insurance, rose 1.6 percent to 506 million euros in the third quarter, almost matching analysts’ estimates for 507 million euros.
--Editors: Mark Bentley, Frank Connelly