BNP Paribas Keeps Pace With Wall Street on Trading

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(Bloomberg) — BNP Paribas SA (PA:) kept pace with gains at some of its biggest Wall Street rivals in the fourth quarter, posting a near 63% jump in fixed-income trading revenue after a rebound in rates and foreign exchange activity.

Fixed income, currency and commodity trading revenue jumped to 820 million euros ($905 million) in the final three months of the year, way ahead of its lackluster earnings a year earlier, though falling short of the $1 billion generated in the third quarter. The results place BNP ahead of European rivals Deutsche Bank AG (DE:) and UBS Group, and in line with earnings at some of the biggest U.S. banks including Goldman Sachs Group Inc (NYSE:).

Chief Executive Officer Jean-Laurent Bonnafe is overseeing a revival of the bank’s trading performance after slashing costs and downgrading revenue and profitability targets a year ago. That came after the bank lost money on index derivatives hedging and because of “extreme market movements” at the end of 2018.

Still, the Paris-based bank joined European rivals in paring back some of its targets at a time when prolonged negative rates are eating into lending margins. The bank introduced a 10% return on tangible equity target for 2020, dropping a previous and slightly higher target, though the newer figure is still more ambitious than many rivals.

FICC benefited from “very strong growth across all segments” BNP said, highlighting rates, foreign exchange and credit. That helped BNP’s global markets unit — its key trading division — more than double revenue from a year earlier. Equity and prime services revenue increased to 520 million from a “low base” of 145 million euros a year earlier.

BNP’s corporate and investment bank is well positioned for 2020 after gaining market share in its key businesses last year, Chief Financial Officer Lars Machenil said in a Bloomberg TV interview. “International financial services remains the engine of growth,” he said.

For 2020, the bank targets business growth in all its operating divisions and a decrease in the absolute value of its operating expenses.

Jaws Effect

Overall, revenue rose 11.5% in the quarter to 11.3 billion euros, ahead of estimates and outpacing a 4.6% increase in costs in what is known as positive jaws effect. The bank’s common equity Tier 1 ratio, a measure of financial strength, further increased by 10 basis points to 12.1% at the end of the year from the third quarter. Net income rose 8.6% in the quarter to 1.85 billion euros, slightly missing the average analyst estimate of 1.88 billion euros.

As part of the measures announced a year ago, Bonnafe pledged an additional 600 million euros in cost cuts to weather a trading slump. The bank is targeting about 3.3 billion euros of expense reductions by 2020. Results at the end of 2018 had been particularly difficult, when the bank lost about $80 million on derivatives trades linked to the U.S. stock market.

The French bank is past halfway through its 2020 cost plan, but has so far stayed clear of suggesting any big job-cutting plans like those at Parisian rival Societe Generale (PA:) SA or the thousands of planned reductions at Deutsche Bank. Instead, BNP’s moves have included outsourcing equity research in Asia to Morningstar Inc. The bank said Wednesday that it plans to generate additional recurring savings of 1.5 billion euros in 2020.

BNP’s performance in FICC trading last quarter puts it near the middle of the pack compared with Wall Street Peers. Morgan Stanley (NYSE:) led the gains after seeing revenue more than double, while JPMorgan (NYSE:) posted an 86% jump. Bank of America (NYSE:) had one of the lowest increases, with a 25% jump in revenue.

BNP Paribas is targeting its spending to win clients in countries such as the U.S., the U.K. and especially Deutsche Bank’s backyard, Germany, where the mass of small and medium-sized companies have traditionally been the backbone of its export-oriented powerhouse economy.

(Corrects market movements date in third paragraph)

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