BNP Paribas sees strong retail recovery, cushions profit fall

By Mathieu Rosemain

PARIS (Reuters) -France's BNP Paribas forecast a strong rebound in its retail banking division for the second half of the year, soothing investor concerns on Thursday with tight cost control and a smaller-than-expected drop in quarterly profit.

The euro zone's biggest bank by assets said it expected second-half revenue to rise more than 5% from a year earlier, fuelled by prolonged strict cost control and stronger sales in its retail and consumer businesses.

The upbeat outlook helped overshadow a mixed quarter for BNP, as its investment bank lagged Wall Street rivals.

BNP shares rose 2% in early Paris trading, outpacing France’s blue-chip CAC 40 index.

Deutsche Bank and other European lenders also reported second-quarter results on Thursday, with the German bank beating expectations. While the economic outlook remains uncertain, banks so far are not expecting a major hit from the latest wave of U.S. trade tariffs.

BNP's net income in the April-to-June period fell 4% from a year earlier to 3.26 billion euros ($3.8 billion), slightly above analyst forecasts. Revenue rose 2.5% to 12.6 billion euros, in line with expectations, while provisions for bad loans matched estimates.

At its investment bank, fixed income, currency and commodity trading revenues jumped 27%, lifted by market volatility due to U.S. President Donald Trump’s tariff policies, but equity trading slumped and pre-tax income from global banking declined. Overall, investment banking revenue rose 4% from a year earlier.

Several analysts welcomed the bank's lower-than-expected costs and the rebound in its retail operations.

"Revenue performance in European retail was a standout and sets up well for H2 '25 acceleration," Jefferies analysts said in a note. "Elsewhere, the group exhibited strong cost control."

RETAIL REBOUND

CEO Bonnafe, whose tenure was extended in May, has made the investment bank a key part of his efforts to boost BNP's profits, while also cutting costs and bulking up in asset management with the recent acquisition of AXA Investment Managers.

The bank's shares have underperformed rivals, however, and even this year's 22% gain lags the wider European banking sector, with investors cautious about BNP's relative growth prospects.  

BNP said its average tax rate for the quarter was nearly six percentage points higher than a year ago, following changes to U.S. tax rules on financing expenses. That weighed on net earnings, with pre-tax income up 3.1%.  

Earnings from BNP's insurance operations rose sharply, driven by solid operating income and a one-off gain related to a financial stake in China. 

BNP's retail and consumer division saw a 4.3% rise in net interest income in France. Analysts expect further improvement following a recent cut in the regulated rate on the country's popular Livret A savings account, which offers room for margin expansion.

    French banks typically lag their Spanish and Italian peers in benefiting from higher interest rates, as 96% of French mortgages are on a fixed rate.

BNP announced an interim dividend of 2.59 euros per share, to be paid on September 30.

It also said it expected to surpass 12.2 billion euros in net income this year, in line with its 2024-2026 targets.

($1 = 0.8503 euros)

(Reporting by Mathieu Rosemain;Additional reporting by Bertrand de Meyer; Editing by Tommy Reggiori Wilkes, Ingrid Melander and Emelia Sithole-Matarise)