BNP Paribas begins overhaul after quarterly profit drop

Lionel Laurent and Matthias Blamont
Illuminated signs light up at twilight outside the headquarters of the BNP Paribas bank in Paris January 30, 2012. REUTERS/Mal Langsdon

PARIS (Reuters) - BNP Paribas said it would kick off a three-year plan to save 2 billion euros (1.7 billion pounds) in annual costs and ramp up growth in Asia after its fourth-quarter profits were hit by Europe's weak economy.

France's No. 1 listed bank said the savings would come from simplifying its reporting structure and from investing in technology improvements, which would cost a total of 1.5 billion euros. It said no business would be shut down.

The announcement lifted BNP's shares 2.5 percent, outperforming a flat STOXX Europe 600 banks index <.SX7P> and offsetting the bank's weaker-than-expected quarterly results.

"(The plan's) successful implementation would lift (2012 pro forma) pre-provision profits by 14 percent," Goldman Sachs analyst Jean-Francois Neuez wrote in a note. BNP made a net profit of 6.5 billion euros last year, up 8.3 percent from 2011.

While BNP is seen by analysts as robust and well-capitalised after a year-long drive to cut its balance sheet and shrink its holdings of risky euro zone sovereign debt, it is still heavily exposed to mature European markets and is under pressure to show investors new paths to growth.

The bank said on Thursday it was eyeing a ramp-up in Asia, where it wants to lift revenues from investment banking and its asset-gathering Investment Solutions division to over 3 billion euros by 2016, up from 2 billion in 2012. It is also aiming to hire 1,300 people in the region through to 2015.

"We see a low-growth scenario in Europe (in 2013)," BNP Chief Executive Jean-Laurent Bonnafe told Reuters Insider television. Acquisitions are not currently planned, he said.


BNP reported a one-third fall in net profit for the fourth quarter of 2012, to 514 million euros. Analysts had been expecting a profit closer to 1.0 billion, according to a Thomson Reuters I/B/E/S average forecast.

Among the trouble spots were Italy - where BNP took a 300 million-euro goodwill write-down on its BNL subsidiary as part of an effort to raise its capital strength - and investment banking, where a rebound in revenues was hampered by a rise in loan losses on the back of one specific unidentified loan.

BNP said it would propose a cash dividend of 1.50 euros per share and said its focus on balance-sheet strength in 2012 had lifted its Basel III Core Tier 1 Ratio to 9.9 percent.

Smaller rival Societe Generale reported a wider-than-expected fourth-quarter loss on Wednesday and held back from giving any numbers or targets on its own plan to unlock cost savings over the next three years.


Half of BNP's planned 2 billion-euro savings will come from retail banking, where cuts are seen as long overdue now that the economic slowdown and government budget cuts have started to hit core markets like France.

Profits at the bank's French, Belgian and Italian retail operations fell in the fourth quarter, with rising loan losses in Italy almost halving BNL's earnings before tax.

The French economy shrank 0.3 percent in the final three months of 2012, preliminary national figures showed on Thursday, as companies cut back on investment and exports flagged.

Savings at BNP's corporate and investment bank, which bore the brunt of cuts last year in the wake of a euro-driven market panic, will account for a third of the total. The unit will focus on growth in the United States and Asia and will further develop its fixed-income platform after a boom year for bond markets.

Asked whether the savings plan could be done without cutting jobs, BNP's Bonnafe said: "We'll see." He said that the bank was always monitoring staffing levels and would prioritize moving staff to other divisions over straight reductions.

(Editing by Mark John and Helen Massy-Beresford)