If there is one year in which BNP Paribas deserves recognition for its global markets business, it is this one. It has transformed its franchise both strategically and financially, and wins the 2022 Euromoney award for the world’s best bank for markets.
“The last year is the consolidation of what we have been doing over the last three or four years in equities and fixed income,” says Olivier Osty, head of global markets at BNP Paribas. “It also creates the ambition for the next three years to become the one and only European bank able to challenge the US firms.”
It is already not far away from that ambition. In Europe, it is the bank that challenges JPMorgan, Goldman Sachs and Citi. Osty thinks his bank can move from being the only European challenger to the US firms in Europe to being one of the top two firms in Europe outright.
Shortlisted
North America calls for a different approach. Barclays has a stronger footprint there, by virtue of its legacy Lehman franchise, but BNPP is growing. What BNPP wants is to be seen as a European expert for US clients, rather than competing with US banks for US business.
It has been a busy time for the bank, which has seen three big changes to the profile of its equities franchise. Since 2019 it has been integrating the prime services business of Deutsche Bank, shifting 1,000 staff and all the necessary technology to support them, and wrapping up the project by the end of 2021.
A similar arrangement was struck in November 2021, this time winning the competition for a referral agreement from Credit Suisse, which had to exit prime services after its bruising experience relating to Archegos.
And alongside those changes, the bank also launched a project to acquire the whole of Exane BNP Paribas, its research and execution joint venture – a move that positions BNPP’s equities franchise as the complete package for institutional clients.
“There has been a big difference in people’s mindset,” says Osty. “Post-Archegos and post the transfer of Deutsche Bank’s prime finance and execution platform to BNPP, they have realized that BNPP is serious when it comes to developing a global equity business. We have moved in two years from being a global player in fixed income but a regional player in equities and equity derivatives, to being a global player in both.”
The timing has been helpful. Institutional clients want to concentrate their flows into a smaller number of dealers, which therefore need to be global. At the same time, those clients also want diversification away from US counterparties.
“We have tailwinds thanks to our clients’ priorities and also thanks to a management team that supports our development,” says Osty.
One of the bank’s core strengths still is equity derivatives and last year saw the bank notch up its best-ever performance in this business. Like its French rivals, BNPP had a tough time at the very end of 2020 and start of 2021 when dividend suspensions in Europe played havoc with many structured products that they specialized in selling.
Osty says he did not want to kill the business just because of a bad year that had been caused by a rare and massive re-correlation; and indeed, the bank performed better in 2021, particularly after it had taken steps to avoid the kinds of concentration effects that it had seen before.
BNPP has long been a fixed income powerhouse. In global credit, the bank saw market share increases in all its regions. One particular area of focus has been in building out US derivatives, where the bank is a top liquidity provider for single-name credit default swaps, for example.
We have tailwinds thanks to our clients’ priorities and also thanks to a management team that supports our development
Rates, a business where BNPP is an established leader in many markets, was subdued over much of the period under review – but it is quite the opposite now. In FX, the bank is strong in local markets and is still developing in new markets. It opened a branch in Mexico last year to allow it to trade onshore there.
The bank is fortunate in being one of the few still to have a commodity derivatives business. It has helped a lot, particularly given its sensitivity to inflation, but there are probably constraints on how far BNPP can take this business. First, it is not a physical player and second, its focus on sustainability rules out business from some clients – for example in the shale gas sector – that US competitors can and do trade with.
The global economic backdrop has backed up Osty’s decision this year to recreate a macro business combining rates, FX and commodities. As recent months have shown, everything is macro now.