2nd UPDATE: BNP Paribas 2Q Net Surges 31% On Retail Banking

2nd Aug 2010 10:59

(Adds detail and analyst comment.) By Elena Berton Of DOW JONES NEWSWIRES PARIS (Dow Jones)--BNP Paribas SA (BNP.FR), France's largest lender by market capitalization, Monday reported far better-than-expected second-quarter net profit, as strong retail operations and lower provisions more than offset a slide in investment banking, which was buffeted by the turmoil over euro-zone sovereign debt earlier this year. The Paris-based bank, the first to report earnings ahead of its smaller French peers, said net profit in the quarter ended June 30 surged 31% to EUR2.1 billion from EUR1.6 billion a year earlier, bolstered by strong consumer banking such as mortgages, as well as the lower provisions. Analysts polled by Dow Jones Newswires had forecast an almost flat net profit of EUR1.63 billion. Although BNP Paribas didn't provide an outlook, Chief Executive Officer Baudouin Prot sounded confident about improving markets in the third quarter during an interview with CNBC. "I think investors' worries over the euro zone were an important factor behind the volatility of equity and bond markets in the second quarter," Prot said, adding that these concerns have eased since the publication of stress tests meant to evaluate the financial health of European Union lenders. "I can see that's really improving, and we hope that this would help us have an overall better third quarter in terms of market environment than in the second quarter." BNP Paribas also reaped the benefits of taking over the retail assets of stricken Belgian bank Fortis in 2008, which widened its footprint to Belgium and Luxembourg with around 1,450 branches and further cemented its ranking as one of Europe's largest banks. However, second-quarter net profit slid 7.8% from the first quarter, reflecting a sharp slowdown in investment banking, where revenues dropped 30% to EUR2.68 billion compared with the second quarter last year. The slide reflects the turmoil over the sovereign debt crisis in Europe and market concerns over a renewed global slowdown, which deterred several clients from trading or raising capital in the quarter. At 0950 GMT, shares in BNP Paribas, which have gained around 6% in the past two weeks since the publication of the stress tests, were up 4.5% at EUR55.07, helping lift European stocks to a three-month high along with U.K.-based rival HSBC Holdings PLC (HBC). Also reporting earnings Monday, HSBC said its net profit for the first half of the year doubled on lower impairment charges and a gain on the value its own debt. BNP Paribas posted EUR11.17 billion in second-quarter revenue, up 12% from the same period in 2009, which includes a EUR235 million gain from the lower value of its debt, compared with a EUR237 million charge in the second quarter of 2009. Banks can record gains if the value of their debt falls, since it would become cheaper to repurchase, and conversely book losses if the value of the debt rises, as many lenders did between 2008 and early 2009. Bernstein analyst Sabyasachi Mohanty, who has an outperform recommendation on the stock, said the results were quite good, comfortably beating the brokerage forecasts. "The only weak spot was equity and advisory," he said. Nomura's Jon Peace said he expects investors will react favorably to BNP Paribas' overall performance and take some comfort that equity trading, while weak, was not loss-making. Nomura has a buy recommendation on the stock. Paris-based brokerage CM-CIC said the bank's performance, with stable revenue and lower cost of risk, should enable it to rank among the European top-three lenders in the second quarter. BNP Paribas' cost of risk, which totaled EUR1.08 billion in the quarter, continued the downward trend of the previous quarters, more than halving from the same period in 2009. Italy, where BNP Paribas derives 7% of its revenue through its BNL unit, was the only exception, as provisions rose slightly due to riskier lending to small-to-medium enterprises, which have been harshly hit by the economic downturn. This trend is set to continue before easing in 2011, the bank said. The Tier 1 capital ratio--a key measure of a lender's capital strength, consisting of equity, preferred shares and retained earnings--improved slightly to 10.6% at June end, compared with 10.5% at the end of March. Like Societe Generale SA (GLE.FR) and Credit Agricole SA (ACA.FR), BNP Paribas last month passed EU-wide stress tests on its resilience to severe economic shocks with a wide margin, thanks to the diversity of its assets. European bank stocks have surged in the last two weeks after all but seven of the European Union lenders that were stress tested passed and as global regulators decided to soften their stance on new capital rules that are due to be introduced in 2018. -By Elena Berton, Dow Jones Newswires; +33 1 40 17 17 65; [email protected] (Angeline Benoit in Paris contributed to this article.) (END) Dow Jones Newswires August 02, 2010 05:59 ET (09:59 GMT)