BNP Paribas warns on profit after RM5b virus hit

ZURICH • BNP Paribas SA warned full-year earnings will take a pounding from the coronavirus outbreak after the bank followed Societe Generale SA (Soc- Gen) in setting aside more cash to cover problem loans and posted a US$200 million (RM861 million) hit at its trading unit.

The French lender said net income this year could be 15% to 20% lower than in 2019 because of the impact of the lockdown measures, according to a statement yesterday. While first quarter (1Q) profit and revenue met analyst estimates, the bank took more than US$1 billion in charges and writedowns, including €502 million (RM2.34 billion) for future bad credit.

Equities income was wiped out after complex products backfired as markets went into a tailspin. Both BNP Paribas and SocGen were blindsided as companies moved to cancel dividends, impacting structured products. The equities slump offset a near 35% increase in revenue from fixed income, currency and commodity trading, above the Wall Street average.

The results are a setback to CEO Jean-Laurent Bonnafe’s (picture) effort to bolster the equities and prime services unit after the firm last year agreed to take over Deutsche Bank AG prime brokerage clients to take market share from rivals cutting back their investment banks. At the same time, the increase in provisions is in line with many of the bank’s larger rivals in a dismal quarter and revenue excluding one-time items posted a slight increase.

The stock rose as much as 6.8% in early Paris trading before paring gains to trade 4.5% higher, reducing this year’s decline to 47%.

Spain’s Banco Santander SA is leading the way among continental European lenders posting large provisions after setting aside €1.6 billion specifically for losses linked to the virus. Italy’s Uni- Credit SpA is taking an additional €900 million in provisions, Deutsche Bank about €500 million and UBS Group AG approximately half that. BNP Paribas’ total US$1.2 billion hit in 1Q is similar to that at Credit Suisse Group AG, which saw a US$1 billion impact divided between loan losses and write-downs.

BNP Paribas said net income fell by about a third from a year earlier because of the virus and revenue declined by about 2.3%. Rival SocGen slumped to a surprise 1Q loss after coronavirus-related market volatility wiped out stock trading revenue and bad loan provisions surged. While it said provisions could hit €5 billion this year, BNP Paribas didn’t give a forecast.

“A lot will depend on how this deconfinement will work,” BNP Paribas CFO Lars Machenil said in a Bloomberg TV interview. “In our view, a pickup of the economy back to normalisation will happen at best by the end of the year and therefore a return of GDP to normal will not happen before 2022.”

BNP Paribas’ equities trading revenue was down about 80% even when excluding the dividend impact because of the impact of the “dislocation” of hedging strategies during March volatility, the bank said, while overall global markets revenue declined about 14%. The results compare to gains of 28% in equities trading at the biggest US firms and an average jump of 31% in fixed income trading. In Europe, trading result was uneven, with Barclays plc and UBS Group leading gains. — Bloomberg