France’s biggest banks are rushingto cut the more than 140 billion euros ($171 billion) theyprovide their operations in Europe’s troubled economies, seekingto protect themselves against a possible breakup of the euro.
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.
Deutsche Bank, Europe’slargest investment bank by revenue, yesterday said that second quarter pretax profit at its securities unit slid 63 percent to357 million euros.
Most of the European markets rose Thursday amid hope that the European Central Bank would announce stimulus measures later in the day to boost the faltering euro zone economy.
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.
It’s like shifting sands, with European banks protectingagainst invisible currency risks within the euro zone.
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 .
The debt problems and weak economy have hit banks across Europe, with lenders including Deutsche Bank (DBKGn.
PARIS — A downturn in BNP Paribas’ corporate and investment banking division contributed to a 13.2 percent fall in the French bank’s second quarter net profits to €1.8 billion ($2.2 billion).
The lender, hurt by last year’s liquidity crunch andlosses on Greek sovereign debt, joined French rivals BNP ParibasSA (BNP) and Credit Agricole SA (ACA) in shrinking balance sheets in mostoverseas markets and trimming government debt holdings.
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.
Reducing assets in the five countries to limitcross border exposure may erode BNP Paribas’s after tax earningsby 4.7 percent and Credit Agricole’s by 7.2 percent, estimatesBenoit Petrarque, a Kepler Capital Markets analyst in Paris.
DIVIDEND FLEXIBILITYThe 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 US retail subsidiary BancWest and what its plans are for operations in euro zone trouble spot Italy.
The debt crisis faced by the euro zone and the faltering US economy were expected to push the Fed to take quantitative easing measures to regain the economic growth momentum but it declined to take any additional action at the conclusion of the FOMC meeting Wednesday.
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.
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