February 6, 2019 / 6:18 AM / 13 days ago

BNP Paribas cuts targets, costs after weak finish to 2018

PARIS (Reuters) - BNP Paribas on Wednesday reduced its profit target for 2020 and said it planned to cut 350 million euros in costs from its corporate and investment bank after weak financial markets hit revenues in the final quarter of 2018.

The logo of French bank BNP Paribas is pictured during the Viva Tech start-up and technology summit in Paris, France, May 25, 2018. REUTERS/Charles Platiau

France’s largest listed bank now expects a return on equity of 9.5 percent in 2020, down from a prior target of above 10 percent. The bank also cut its revenue growth target to 1.5 percent per year between 2016 and 2020, from 2.5 percent previously.

The downgrades came after revenue fell 1.5 percent in 2018 to 42.52 billion euros (37.36 billion pounds), dragged down by a 40 percent plunge in revenues at the bank’s global markets business. This business made a loss of 225 million euros, marking its first quarterly loss since the 2008 financial crisis.

Yann Gerardin, BNP Paribas’ head of corporate and investment banking, said the fourth quarter was a low point for the division, but the business would remain under pressure.

“Our conclusion is that this is a structural evolution to which we have to respond through the acceleration of our transformation,” he said.

The bank’s plans for 350 million euros in cost cuts comes on top of 500 million euros in cuts already announced three years ago.

BNP Paribas will also sell or close unprofitable or subscale businesses, as it has already done with proprietary trading and U.S. commodities. The bank expects to sell businesses representing as much as 5 billion euros in risk weighted assets.

Chief operating officer Philippe Bordenave told reporters the new revenue growth target implied an average 4 percent annual rate for 2019 and 2020.

BNP Paribas’ Chief Executive Laurent Bonnafe ruled out any acquisitions.

TOUGH TIMES FOR BANKS

Big European banks such as BNP Paribas are struggling to find new profit sources after years of rock-bottom interest rates have limited returns in retail banking, while corporate and investment banking is vulnerable to financial market swings.

Two of BNP Paribas’ smaller local rivals - Societe Generale and Natixis - have released profit warnings in recent weeks because of losses on market operations. Last week, Deutsche Bank also posted a bigger-than-expected quarterly loss at its investment bank.

BNP Paribas shares were down 0.7 percent by 1230 GMT.

David Hendler, an analyst at Viola Risk Advisors, said the adverse effects of market swings on BNP Paribas’s equity derivatives business might persist in the future.

Brokerage Jefferies said the plans for more cost cuts would be appreciated by investors.

Fourth-quarter group revenues fell to 10.16 billion euros from 10.53 billion a year earlier. Analysts surveyed by Infront Data had forecast revenues at 10.33 billion.

Net profit was 1.44 billion euros, up from 1.43 billion a year earlier and ahead of analysts’ forecast of 1.41 billion.

A deficient hedging strategy on an equity derivative portfolio also caused a 70 million euro loss in the United States. The loss caused a 70 percent revenue decline at BNP Paribas’s Equity and Prime Services business.

BNP Paribas proposed a 2018 dividend of 3.02 euros per share, stable from last year.

Reporting by Inti Landauro and Matthieu Protard; Editing by Sudip Kar-Gupta/Mark Potter/Jane Merriman

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