February 6, 2018 / 3:52 PM / 10 months ago

Low volatility hits BNP Paribas’s CIB in Q4

LONDON, Feb 6 (IFR) - BNP Paribas’s corporate and institutional banking business was not immune to wider market trends in the fourth quarter of last year as revenues from the unit were affected by low volatility in financial markets.

Revenues in CIB from fixed income, currencies and commodities fell 29.4% to €592m compared with the same period a year earlier. That was the same decline as Deutsche Bank reported last week but less steep than the 31% fall recorded by the five major US banks.

“We have had two quarters of low volatility but this is the nature of the business and there will be higher volatility in future quarters. We remain committed throughout the cycle,” said Philippe Bordenave, chief operating officer.

In equities BNPP did better than rivals, reporting an 8% quarter-on-quarter rise to €482m, against a 7% average fall for the US banks, a 25% drop at Deutsche and a 1% rise for UBS, which is a major player in this area. Unlike others, the French bank includes revenues from equity capital markets transactions, which have generally proven buoyant.

Its cash equities trading is done via a joint venture with Exane. The bank is optimistic this will be able to command a decent market share in equity research, after the new European Union rules bed in that require this to be priced separately from trade execution under MiFID II. It declined to specify precise revenue expectations in what is believed to be a competitive market.

The bank said two specific developments were responsible for the French bank raising provisions by €194m to €264m in the three months to December 31. BNP Paribas declined to comment on individual clients but they are suspected to be exposures to retailer Steinhoff International and UK government contractor Carillion, which were under pressure from creditors in the quarter.

Like other banks, group profits could be hit in future quarters too. The bank said in notes to its statement that under the new accounting rule IFRS 9, which requires lenders to estimate credit losses when they first appear, its impairments would be €3.3bn higher in 2017 than under the previous regime at €29.3bn.

Bordenave said the bank’s plans for Brexit were on track. “We are working in a cautious way and preparing for a hard Brexit so we comply with what supervisors require by March 2019,” he said, noting for instance that the bank was in a better position than many since it already had a significant presence in the EU-27 via its Paris headquarters.

The bank also said its CIB push into Germany, taking advantage of the weakness among competitors in the market, was paying off with revenues up 5.6% in 2017. “Four years ago we started our plan to grow in Germany and have seen revenues rise by 10% annually to €1.5bn,” said Bordenave.

Overall fourth-quarter revenues across CIB were down 6.9% to €2.63bn. At constant scope and exchange rates they fell only 3.7%. Operating expenses fell by 1.6% to €1.88bn but were up 2.9% stripping out the FX effect. Overall CIB pre-tax profits were down 42% to €491m. For the full year they rose 14.6%, or 15.7% at constant FX, to €3.4bn.

“CIB was weaker than expected (but equities were better) and provisions miss was driven by specific positions,” said Azzurra Guelfi, analyst at Citigroup. (Reporting by Christopher Spink)

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