The European lender with the most ambitious plans to create a U.S.-style full-service global investment bank these days is France’s BNP Paribas. BNPQY 0.60% Fourth-quarter results Tuesday showed what a challenge that can be.
Continental Europe’s largest bank by market value reported decent overall numbers, flattered by lower loan losses. Revenue and profit grew last quarter, creating a comfortable capital buffer of 12.9% and delivering a return on tangible equity of 10%. But BNP’s global-markets division trailed the performance of U.S. rivals on both the top and bottom lines because of normalizing markets.
Investment banking has been a focus for the French company, though it calls it institutional banking or global markets. Last year it bought out its research and cash equities joint venture with partner Exane and acquired Deutsche Bank’s DB 4.85% global prime brokerage and electronic equities unit. Together with BNP’s global equity derivatives group and origination business, these have created something approaching the kind of full-service investment bank dominant on Wall Street.
The French group doesn’t hope to take on the likes of JPMorgan JPM 1.88% or Goldman Sachs GS 0.53% on their home turf—a strategy that previously led Deutsche Bank and other regional peers astray. Instead, it wants to be a European bank with international reach: the one-stop shop for European companies around the globe, and the first port of call for North American and Asian companies on the European continent.
During the first half of 2021, BNP was the European bank with the highest investment-banking revenue in the Europe, Middle East and Africa region, ranking third overall behind two U.S. rivals, according to Coalition data. BNP hopes to maintain this position.
Last year, higher cash equities and prime brokerage revenue for BNP weighed against weakness in fixed income, but the investment bank underperformed its U.S. peers. Looking ahead, a broader equities business might help it cross-sell more products and increase its customer appeal while also smoothing out the inevitable bumps that stock markets deliver.
BNP’s narrower equity-derivatives business suffered significant losses from sharp U.S. market movements in 2018 and again in 2020 when a number of companies didn’t pay dividends because of the pandemic. BNP hopes its recent expansion will pave the way for share gains in what is a competitive market, even without going after U.S. company business in the U.S market.
The lender also unveiled financial targets for 2025 on Tuesday, promising compound annual growth of 4% in the global-markets business, 3.5% in total revenues and 7% in group net income. It has promised a 2025 return on tangible equity of more than 11% and a 60% shareholder payout ratio. That seems realistic given the group’s recent performance, and respectable for a European bank.
Historically, global investment banking hasn’t been a good business for European lenders, but BNP is a well-diversified bank taking a calculated risk. This year and next will offer the first real tests of its big strategic bet.
Write to Rochelle Toplensky at [email protected]
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