BNP Paribas cuts targets after derivatives loss

PARIS • BNP Paribas SA lowered its forecasts for revenue and profitability as the French bank’s trading business lost money in a stock market rout that blindsided many of its peers.

France’s biggest lender said yesterday that it’s planning €600 million (RM2.79 billion) in additional cost cuts, focusing on the investment bank that CEO Jean-Laurent Bonnafe had targeted as a growth driver. Income from trading shrank 40% in the fourth quarter, led by the worst equities performance among the large investment banks.

The bank cited “extreme market movements at the end of the year”, weak client demand for structured products and a loss on index derivatives hedging. People familiar with the derivatives trades, which were tied to the S&P 500 Index, said in January the losses reached US$80 million (RM327 million).

A second straight annual revenue decline and the misstep in derivatives, a traditional strength of the firm, are threatening Bonnafe’s ambition to make BNP Paribas a dominant force in Europe as rivals shrink.

BNP Paribas fell 2.5% at 9:02am in Paris trading. Before yesterday, the stock had fallen 37% over the past 12 months, underperforming the 26% decline by Europe’s Stoxx 600 banking index.

BNP Paribas now expects return on equity to be 9.5% in 2020, down from a previous target of 10%, while the cost-income ratio will be 64.5%, up from 63%.

The bank kept its 2018 dividend stable from a year earlier. — Bloomberg