BNP Paribas shares jumped Tuesday morning on the Paris Stock Exchange, driven by the publication of slightly lower results but better than expected in Q3. Over this period, the strong growth of the bank’s market activities offset the provisions made in anticipation of defaults linked to the health crisis.
At 1 p.m., the title gained 5.85% to 32.96 euros, thus achieving the best performance of the CAC 40.
The bank published a net profit down 2.3% in the past quarter, to 1.89 billion euros. The cost of risk, which measures provisions for bad debts, increased by 398 million euros year-on-year and now represents 57 basis points of outstanding loans, compared to 41 basis points in the third quarter of 2019. This indicator s ‘however improved from the second quarter, when it stood at 65 basis points.
BNP Paribas’ publication is “solid”, with in particular a net profit 29% higher than the consensus forecast, notes Jefferies.
“These results confirm the resilience of the group’s profitability and balance sheet, as well as the advantages of diversification”, adds Azzurra Guelfi at Citi. Investors must, however, be attentive to the prospects for profitability for the end of 2020 and 2021, given the new containment measures announced to fight against the second epidemic wave, warns the analyst.
The effect of the rise in the cost of risk on results was mitigated by a 3.8% drop in the group’s operating expenses, which benefits from the cost-saving measures implemented in recent years and from a base of favorable comparison after the restructuring costs recorded a year ago. Gross operating income for its part rose 7.9% to 3.75 billion euros.
Supported by the good performance of investment banking, net banking income (NBI) remained stable over the period (-0.1%), at 10.89 billion euros. Activity benefited from a 3.5% increase in outstanding loans over the quarter, but low rates and the appreciation of the euro against several currencies, including the dollar weighed on income. At constant scope and exchange rates, however, NBI increased by 2.1%.
“The recovery in economic activity is gradual in the third quarter and shows different dynamics depending on the geographic areas and sectors. It is accompanied by the extension of public support to the most affected sectors and by the establishment of plans and devices to support the economy ”, commented BNP Paribas in a press release.
Analysts polled by FactSet expected on average a net income of 1.52 billion euros and a GNP of 10.69 billion euros in the third quarter.
Good momentum in investment banking
The Domestic Markets branch, which includes retail banking in France, saw its revenues decline 0.6% in the third quarter, held back by the low interest rate environment which is eating away at banks’ interest margins while being supported by the performance of its specialized businesses.
The NBI of the International Financial Services division, focused on consumer credit, asset management and insurance, fell 7.2% (-3.9% at constant exchange rates and scope), penalized by repercussions of the health crisis. The group suffered in particular from the drop in stock market valuations in its asset management and insurance divisions despite the gradual rebound in financial markets during the quarter.
Corporate and investment banking (CIB) On the other hand, its activity saw its activity jump 17.4%, driven by an increase in revenues in all of its businesses and in all regions where the group is present. Growth was particularly strong in market activities (+ 32%) and in particular in fixed income and commodity products (+ 36%). The group said it benefited from the high level of bond issues made during the quarter. The CIB division’s pre-tax income increased by 15% to € 955 million over the quarter.
Confirmation of forecasts in a difficult environment
The bank has a solid balance sheet to cope with the effects of the crisis. At the end of September, the CET1 solvency ratio stood at 12.6%, up 20 basis points compared to the end of June and against a floor of 9.22% required by the European Central Bank (ECB) in terms of equity. This increase can be explained by the reserve of results as well as by a slight decrease in risk-weighted assets.
For the whole of 2020, BNP Paribas confirmed that it anticipates a decline of 15% to 20% in its net income, due to a cost of risk which should remain at a high level in the coming months. Over the first nine months of the year, the bank’s net income fell 13.4% to 5.48 billion euros.
The central macroeconomic scenario adopted by the bank anticipates a gradual recovery in its markets and a return to a level of gross domestic product (GDP) comparable to 2019 in mid-2022. This scenario, identical to the one presented this summer, already takes into account the expected effects of the recovery plans.