August 2, 2012 / 4:38 PM / in 6 years

BNP Paribas beats rivals to hit capital target early

PARIS (Reuters) - BNP Paribas (BNPP.PA), one of Europe’s biggest banks, has hit a target to strengthen its capital base six months early, beating many rivals as it strives to reassure investors worried about its exposure to the region’s debt crisis.

A part of the logo of the BNP Paribas bank is seen on the rooftop of their Paris headquarters April 26, 2012. REUTERS/Mal Langsdon

The move, which puts the French bank well ahead of domestic rival Societe Generale (SOGN.PA) and in the top tier of banks across Europe, came as BNP posted a smaller-than-expected fall in quarterly profit, helped by tight cost control, asset sales and lower provisions for loan losses.

BNP shares, which often trade as a proxy for the euro zone, fell more than rivals after the European Central Bank disappointed markets hoping for action on the debt crisis on Thursday. The ECB statement came after BNP reported second-quarter results.

Analysts said the fortunes of BNP, France’s biggest listed bank, were heavily dependent on the European economy. “We still see good value in a European context,” said Nomura analyst Jon Peace. “That said, we expect French banks to remain highly leveraged to euro zone macro developments.”

At 11:45 a.m. EDT (1545 GMT), BNP shares were down 4.1 percent at 29.45 euros, more than the 2.8 percent decline in the STOXX 600 Europe bank index .SX7P.

The debt problems and weak economy have hit banks across Europe, with lenders including Deutsche Bank (DBKGn.DE), Switzerland’s UBS UBSN.VX and Spain’s BBVA (BBVA.MC) as well as SocGen reporting dismal second-quarter earnings.

As at rivals, BNP’s corporate and investment bank bore the brunt of cost cuts and volatile markets, with pretax profit sinking 40 percent and revenue down by a quarter.

Banks have been selling assets, slashing jobs and cutting dividends to bolster their balance sheets and meet tougher regulations aimed at preventing a repeat of the 2008 financial markets crisis.

BNP said on Thursday it had achieved a Tier 1 capital ratio of 8.9 percent under industry-wide Basel III rules at the end of June - some six months ahead of schedule.

By contrast, SocGen is eyeing a Basel III ratio of at least 9 percent only by the end of next year.

“This is evidence of the quality of the bank’s fundamentals and gives management considerable room for maneuver in a still-tough market context,” Natixis analyst Alex Koagne said of BNP.

“(It is) one of the very few banks to achieve such a feat.”

Analysts said BNP had benefited from its strength in retail banking, which has been more resistant to volatile financial markets than investment banking, as well as cost-cutting and a knack of selling assets at acceptable prices.

DIVIDEND FLEXIBILITY

The strengthened balance sheet also offers flexibility on dividend policy, Chief Operating Officer Philippe Bordenave told analysts on a conference call, saying the bank might not need to rely on offering shares instead of cash to investors to save money.

“We are very confident for the second part of the year,” BNP Chief Executive Jean-Laurent Bonnafe told Reuters Insider television.

Analysts want to know whether BNP will decide to sell its U.S. retail subsidiary BancWest and what its plans are for operations in euro zone trouble-spot Italy. Bonnafe was a key player in acquiring and integrating BNP’s Italian subsidiary BNL in 2006 and may buy bolt-on banks or branches to boost deposits.

Bonnafe told journalists BNP would grow via market-share gains and expanding in Asia, though he ruled out acquisitions for now because of the uncertain regulatory backdrop.

Asked if BNP was embroiled in the interest rate-fixing scandal that has engulfed more than a dozen rivals, Bonnafe said the bank was “absolutely not” involved.

Markets including France, Italy and Belgium are expected to show “resilience” in the second half, Bonnafe told Insider TV. BNP has benefited from relatively low household debt levels in these countries.

Second-quarter net income fell 13 percent to 1.85 billion euros ($2.3 billion), beating the 1.74 billion average of analysts’ estimates in a Reuters poll.

Revenue dropped 8 percent to 10.10 billion euros, broadly in line with the poll average.

Retail banking, a division that has proven a lucrative counterweight to financial market turmoil, saw pretax earnings slip by just 2 percent.

    Editing by Erica Billingham

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