BNP Paribas expects end to trading boom, COVID loan pain to ease

PARIS (Reuters) – BNP Paribas warned investors on Friday that a debt-trading bonanza that supported its earnings last year was unlikely to last, while signalling that the worst of the global coronavirus crisis was over for its loan book.

Charges linked to the COVID-19 pandemic took their toll on fourth quarter net profit at BNP Paribas, which said it had set aside more provisions for loans that could turn sour.

But the eurozone’s biggest listed bank struck a more upbeat note for 2021, saying it expected its cost of risk, which reflects provisions for bad loans, to drop compared to 2020 as the outlook improves in the second half.

Another side-effect of the pandemic, a surge in fixed income trading business, provided a boost to earnings in the fourth quarter, but BNP Paribas warned that this level of market activity was unlikely to persist in 2021.

The Paris-based bank said revenue at its corporate and institutional banking business rose 6.9% in the quarter as fixed-income, currencies and commodities (FICC) trading revenue jumped by 22%, mirroring gains among its global competitors.

“FICC is unlikely to experience the same magnitude of revenues that it generated in 2020 on the back of exceptionally intense client activity”, BNP Paribas said in a statement.

While BNP Paribas has benefited from COVID-19 fuelled market volatility, it is also grappling with the economic chaos sparked by the pandemic and is bracing for repayment problems by setting aside more funds against loans that could turn sour, echoing the experience of rivals like Spain’s Santander.

Its cost of risk, which reflects bad loan charges, rose by 65.5% to 1.59 billion euros ($1.9 billion) in the last quarter of 2020 versus a year earlier.

Although net profit fell 13.9% to 1.59 billion euros, this was a less sharp drop than expected by analysts and BNP Paribas said its cost of risk should fall this year.

Revenue at BNP Paribas, whose shares were up more than 2% in early trading, fell by 4.5% to 10.83 billion euros which was broadly in line with expectations.

“This set of results continue to confirm the resilience of the group’s profitability and balance sheet, as well as the benefit of the diversification,” Citi analysts said in a note.

At its equity and prime services unit, traditionally a strength, revenue fell by 4.5%, underperforming most of its rivals who got a boost from share trading in late 2020.

BNP Paribas said it planned to pay a dividend of 1.11 euros per share in May, based on a 21% payout ratio, within limits set by the European Central Bank to preserve capital.

It is considering paying out more in the fourth quarter, it said, which would see it reach its 50% payout target.

BNP Paribas said in a separate statement it has named Thierry Laborde and Yann Gerardin as chief operating officers to succeed its Philippe Bordenave.

Laborde will lead retail banking activities, while Gerardin will remain head of corporate and investment banking.

($1 = 0.8359 euros)