BNP Paribas SA pledged to deepen cuts at its investment bank even as higher trading revenue helped bolster second-quarter profit. The shares rose.
France’s largest bank posted net income of 2.6 billion euros ($2.9 billion) in the three months through June, up from a loss last year and the highest quarterly level since the start of 2012, it said on Friday. Revenue at the securities unit rose 16 percent to 3.05 billion euros, boosting total sales by the same magnitude.
BNP Paribas is among the region’s banks benefiting from reviving economic growth as the European Central Bank provides unprecedented stimulus, while market swings have bolstered trading activities. Chief Executive Officer Jean-Laurent Bonnafe, 54, like competitors at Deutsche Bank AG and Barclays Plc, is overhauling the securities unit as regulatory demands for larger capital buffers put pressure on cost.
“This business is changing very deeply at a global level under the effect of regulation,” Chief Operating Officer Philippe Bordenave told journalists in Paris. “You’ve got to be awake and not to rest on your laurels.”
“Cutting costs wherever they can be reduced” will be part of the investment banking overhaul, Bordenave said. BNP also wants to capture market share and develop the unit in “selected areas,” he said.
BNP Paribas rose as much as 3.6 percent and was up 2.7 percent to 59.19 euros by 1:56 p.m., giving the bank a market value of 73.8 billion euros.
Corporate and investment banking pretax profit increased 26 percent to 1 billion euros in the second quarter, beating analyst estimates of 828 million euros.
The reorganization of the securities unit may bring the deepest cost cuts since the financial crisis. BNP Paribas enlisted Oliver Wyman and Boston Consulting Group to work on the revamp, dubbed “CIB of tomorrow,” people with knowledge of the matter have said.
At the investment bank, “there is still enormous work to be done” to reduce cost cuts, which “should focus on fixed income and Europe,” said Alex Koagne, a Paris-based analyst at Natixis SA.
Sustained volumes in flow business and strong demand for structured products helped boost revenue at BNP’s global-markets unit 25 percent to 1.6 billion euros, with equities revenue rising 22 percent from the year-earlier period. When excluding an accounting charge booked last year, fixed-income sales rose 4 percent led by foreign exchange and commodities.
Common equity Tier 1, a key measure of financial strength, rose to 10.6 percent at June 30, up from 10.3 percent three months earlier, it said.
BNP Paribas booked a 420 million-euro gain in the quarter from the disposal of a stake in shopping mall operator Klepierre SA. The bank had a 4.2 billion-euro net loss in the year-earlier period because of record penalties for breaching U.S. embargoes with some countries.
Pretax profit from BNP’s retail-banking activities increased 15 percent to 2.4 billion euros. While earnings at its French branches network contracted 5.2 percent as low interest rates weighed on loan and deposit margins, profit rose at its Belgian and Italian consumer-banking units. Pretax profit at BancWest, the San Francisco-based retail unit, rose 34 percent, helped by the dollar’s increase against the euro.
“These results are objectively solid,” Koagne said. “The only weakness is that French retail banking’s revenue is contracting.”
Excluding one-off impacts, BNP’s return on equity reached 10.1 percent in the first half, the bank said. Bonnafe is seeking to achieve ROE of at least 10 percent next year.
“We are on track and we are very focused on the idea that the plan should be delivered as a whole,” Bonnafe told journalists in Paris. While BNP Paribas is committed to its 2016 targets, the company plans to give an update on the corporate and investment bank’s overhaul with annual results, he said. Bloomberg