BNP Paribas' investment bank shines in boost for shares

By Mathieu Rosemain

PARIS (Reuters) -BNP Paribas reported a forecast-beating jump in quarterly earnings thanks to a surge in trading activity, boosting the French bank's struggling stock price as it pushes ahead with cost cuts to improve profitability.

For CEO Jean-Laurent Bonnafe, who has bet on the investment bank as European rivals retreated, the results will be a relief after a challenging year for the lender's retail activities in France and Belgium.

BNP's shares were up 1.9% at 1110 GMT, outperforming France's benchmark CAC 40 index and European banks.

The euro zone's biggest bank by assets said net income rose 15.7% to 2.32 billion euros ($2.39 billion) in the three months to end-December, beating the 2.24 billion-euro average of 13 analyst estimates compiled by the company. 

Revenue increased 10.8% to 12.1 billion euros, also above the average estimate of 11.6 billion.

The results helped BNP announce a dividend of 4.79 euros per share, up 4.1% from 2023, and a 1.08 billion-euro share buyback programme to be launched in the second quarter of this year.

However, BNP lowered a key profit target for 2025 and said it would cut costs further.

"We think Q4 results are supportive," Barclays analysts said, adding that BNP had delivered on key elements, including return on equity.

BNP has disappointed investors in recent quarters and its shares were among the worst performing of major lenders last year, losing nearly 7% while European rivals' stocks soared.

Investment banking revenue climbed 20% in the quarter, driven by a 34% jump from trading in fixed income, currencies and commodities and a 30% increase from equity prime services. 

The FICC performance beat the average growth at Wall Street banks, which Jefferies calculated at 26%.

Bonnafe has bet on BNP's investment bank to fill gaps left by retreating European rivals and compete with dominant U.S. peers.

Investment banking has helped offset BNP's sluggish retail performance, as record inflows into government-regulated high-interest savings squeezed French banks' margins, while lenders elsewhere in the euro zone benefited from higher rates.

BNP's market share in investment banking in Europe, the Middle East, and Africa rose to 4.9% in 2024 from 4.6% in 2023 by revenue, according to data firm Dealogic.

CAUTIOUS OUTLOOK

Yet BNP struck a cautious note on the outlook. 

It revised a key profitability target down for 2025 and announced 600 million euros more in cost savings in 2026, on top of 600 million euros this year. 

BNP is now targeting a return on tangible equity of 11.5% for this year, down from a previous target of 11.5%-12%. 

It expects to reach a 12% ROTE in 2026, but said the number should rise, helped by its 5.1 billion-euro acquisition of AXA's asset management arm, set to close mid-year.

Asked about further acquisition prospects, Bonnafe reiterated that he intended to stay out of large cross-border dealmaking even as expectations grow for more tie-ups between Europe's many lenders.

"It's very difficult to integrate two banks belonging to two different countries," he said. "But domestic mergers make sense, so it's obviously in the interests of the banks that are positioned to do so."

BNP expects average annual growth in net income of more than 7% over 2024-2026, against a previous forecast of about 8% in 2022-2025, which some analysts had said it would struggle to reach.

The bank has significantly improved its cost-to-income ratio, a measure of efficiency, but it remains above the European banking average, based on data from the European Banking Authority.

($1 = 0.9712 euros)

(Reporting by Mathieu Rosemain. Additional reporting by Sudip Kar-Gupta, Ingrid Melander and Bertrand De Meyer. Editing by Tommy Reggiori Wilkes, Ingrid Melander and Mark Potter)