Class of 2019: BNP Paribas

COPYING AND DISTRIBUTING ARE PROHIBITED WITHOUT PERMISSION OF THE PUBLISHER: SContreras@Euromoney.com

By:
Published on:

BNP Paribas will reach the end of its three year ‘transformation’ plan in 2020; how has it fared?

25logo 200px
bnp
View the Euromoney 25

Good but still work to do

BNP Paribas’s 2017 to 2020 strategic plan, as Euromoney noted when it was launched, was always fairly modest. The bank is not known for flashy changes of direction or overtly ambitious moves, and was duly ensuring that its targets would be mostly achievable even if macro and market conditions turned out worse than anticipated. 

But it has not been easy, particularly in corporate and institutional banking (CIB), where an especially stark example was the terrible performance of the bank’s equities business in the fourth quarter of 2018, partly down to a specific loss in its US operation.

In tougher than expected conditions, the bank was forced to revise its revenue-growth and cost-saving targets under the plan in early 2019. As COO Philippe Bordenave told Euromoney at the time: “When we launched the plan, we were indeed thinking that the CIB revenue pool would be flat, but it is down. We think that 2018 is an exception, but it is still down.”

In cautious fashion, therefore, the bank lowered its compound annual group revenue growth target of 2.5% for 2016 to 2020 to 1.5%. It also increased its annual recurring cost-savings target for 2020 to €3.3 billion from €2.7 billion. The cost-to-income ratio target went from 63% to 64.5% and the return on equity target fell to 9.5% from 10%.

In the event, Bordenave’s assessment of 2018 as an outlier has been proved right, at least for his bank. In the first nine months of 2019, BNP Paribas’ CIB revenues and profits rose 6% and 5% respectively, compared with the same period in 2018. That’s quite a change from the year-on-year falls of 7% and 21% that had been seen at this point a year earlier. And return on tangible equity for the whole group in the first nine months of 2019 stood at 10.3%, above the old target.

Rabble Alliance-160x186

Jean-Laurent Bonnafé

The costs of implementing the transformation plan – €2.6 billion up to the end of the third quarter of 2019, with another €100 million earmarked by the end of the year and zero for 2020 – have been in line with targets. The bank has also hit its cumulative recurring annual cost saving targets, which stood at €1.7 billion at the end of the third quarter, well on track to hit the €1.8 billion full-year target.

There are headwinds for the final year of the plan, however, given the persistent low-rate environment that hurts the bank’s domestic markets and insurance businesses. As those cost savings now have to ramp up to €3.3 billion by the end of the year, BNP Paribas cannot rest easy.

What sets it apart from many regional peers, however, is the fact that while it has selectively cut in a few areas – like its Opera prop trading business and the commodity derivatives operation in the US – it is otherwise still building. Most notable in 2019 was the signing of an agreement to take on the prime finance and electronic equities execution business of Deutsche Bank, a process that is expected to take until late 2020 to complete. 

“We want to further develop our strategic relationship with fund managers – this is absolutely key for us,” Bordenave told Euromoney when the plan was announced in July.

It could prove a useful fillip to returns: the bank hopes to run the prime finance unit at a return on equity of about 20%, possible because of its lower funding costs and greater perceived strength in comparison with Deutsche.

And the bank is still building out coverage in its target European growth markets of the UK, the Netherlands, the Nordics and Germany. In June, it brought in a clutch of new bankers at senior levels for its Finland and Norway country teams. In the UK, another target market and one where the bank launched a corporate broking business in late 2018, it secured its first broking mandates.

It all gives an impression of a firm that, while not producing standout results, is engaged in its traditional slow and steady development. It has already shown that it is able to capitalize on Deutsche’s change of direction with the prime finance deal. And while the latter’s repositioning might make it harder for BNP Paribas to take share in Germany, it will doubtless help it secure share elsewhere in the continent. 

In that task, however, it will be

competing with a Barclays, which is looking to do the same. And it’s worth noting that the area that Deutsche is placing at the heart of its new strategy – its corporate bank – is one that BNP Paribas leans on heavily too. 

Its journey to be “the European bank of reference” might be getting slightly easier, but it is not yet done.