By Mathieu Rosemain
PARIS (Reuters) -BNP Paribas beat first-quarter profit forecasts on Thursday as lower costs and a robust performance in global banking helped to offset a steep fall in its fixed income trading.
The euro zone's biggest bank, led by company veteran Jean-Laurent Bonnafe, has made its investment banking division a key driver of its growth plan and sees annual revenues from market activities rising by more than 7.5% on average over 2021-2025.
The French lender reported a 20% fall in revenue from fixed income, currencies and commodities (FICC) trading, significantly underperforming rivals on Wall Street, where trading revenue declined by about 3% on average amid less volatile markets.
In contrast, Deutsche Bank, which also reported quarterly results on Thursday, produced a 7% increase in fixed income and currencies trading revenue.
BNPP said it was more exposed to the Europe, Middle-East and Africa region, where it made 60% of its FICC sales in 2023, and where the fall in activity was much more acute than in the United States.
"Investors may nitpick the CIB (investment bank unit) performance with another FICC miss and 20% year-on-year decline in the FICC revenue base," Jefferies said in a note, adding that BNPP showed good cost control.
Most analysts were impressed by BNPP's control on costs, which fell at a faster pace in the first quarter than revenues, driving earnings.
JPMorgan said the bank had showed a "solid start of the year for revenue", while Citi said the bank's operating profit showed "progress on cost savings".
The bank, which disappointed investors in February by delaying a key profitability target, struck an upbeat tone for 2024, reiterating its goal to generate full-year earnings of more than 11.2 billion euros ($12 billion).
It also gave a new target for group revenue, saying it expected it to exceed its 2023 distributable sales of 46.9 billion euros by more than 2%, and that the effects of cost cutting flagged previously would begin from the second quarter.
Bonnafe went further in a call with analysts.
"Saying that 24 net result is going to be above 2023 is kind of a minimum," he said. "And 3% could be considered a kind of central scenario, even if we are committed to deliver more than 2%."
The comments drove BNPP's shares higher. They were up by almost 2% at 1202 GMT.
FRENCH RETAIL MARKET
Revenue was flat or falling in most of the bank's businesses in the first quarter.
BNPP said group net income fell by 2.2% to 3.10 billion euros, beating the 2.4 billion expected on average by 19 analysts polled by the company.
Overall revenue fell 0.4% to 12.5 billion euros but topped the 12.2 billion expected by analysts. The bank managed to lower operating expenses at a faster pace, though. They fell 1.5% to 7.93 billion euros.
Bonnafe has made cost savings via outsourcing, digitalisation and automation a key element of its strategy to beef up earnings.
Provisions for underperforming loans stood at 640 million euros, below the 819 million expected by analysts.
Commercial and Personal Banking revenue rose 1% to 4.2 billion euros - above analyst estimates - but the net interest margins in its French business dropped sharply, BNPP said.
In France, its net interest income, the difference between what lenders earn on loans and pay out for deposits, fell by 8% in the quarter due to the cost of inflation hedging instruments.
The French retail market, which is typically less profitable than in other European countries because of rules on mortgage and savings accounts, has proven difficult for BNPP.
The bank announced the abrupt departure last month of the head of that business, Marguerite Berard, who was seen by some industry sources as a potential successor to Bonnafe.
Investors are watching banks' net interest income closely to see if the boost from rising interest rates, which has helped their profitability and share prices, is starting to fade.
BNPP's corporate and investment banking business revenue fell 4%.
Its global banking revenue rose 6.1% thanks to a jump in capital markets activities such as helping companies issue bonds.
($1 = 0.9359 euros)