As well as facing tougher regulations in the wake of the financial
crisis, banks across the world are under investigation for a string
of alleged misdeeds, including fixing benchmark interest rates and
manipulating foreign exchange markets.
This month, Credit Suisse <CSGN.VX> set aside 514 million Swiss
francs ($570 million) to cover U.S. investigations, while in January
Deutsche Bank <DBKGn.DE> blamed legal costs for a surprise quarterly
BNP said on Thursday it had set aside the funds after talks with the
U.S. authorities, though it said there had been no discussion on the
size of any potential penalty.
"We've been doing a retrospective review for several years and we've
basically now presented our findings to the U.S. authorities," BNP
Chief Financial Officer Lars Machenil told Reuters Insider TV.
Standard Chartered <STAN.L> agreed in 2012 to pay $327 million to
resolve allegations that it violated U.S. sanctions against Iran,
Sudan, Burma and Libya.
The sanctioned countries at issue in the BNP investigation also
include Iran, Sudan and Cuba, according to a person familiar with
Representatives of the U.S. Treasury Department's Office of Foreign
Assets Control, the Manhattan District Attorney, the U.S. Attorney
for the Southern District of New York, the Justice Department, the
Federal Reserve and the New York Department of Financial Services,
which the person said are all involved in the probe, either declined
comment or did not immediately respond to a request for comment.
BNP's provision — which was accompanied by restructuring costs and
writedowns on the acquisition value of BNP's Italian unit BNL — dragged fourth-quarter net income down to 127 million euros ($173
million) from 519 million a year earlier, offsetting a rise in group
revenue and gross operating profit,
Analysts had been expecting a net profit closer to 1.0 billion euros,
according to a Thomson Reuters poll of analysts.
BNP shares were down 4.1 percent to 58.38 euros at 1300 GMT, the
biggest fall on the STOXX 600 Europe banks index <.SX7P>.
BNP struck a confident tone for the future despite the one-off
costs, promising a double-digit percentage rise in earnings over the
next three years and an increase in the dividend payout to 45
percent of earnings by 2016 from 41 percent in 2013.
But several analysts and traders said they were disappointed by
BNP's unchanged 2013 dividend of 1.50 euros a share and the bank's
relatively "underwhelming" targets, which also included a 10 percent
return on equity (ROE) by 2016.
By comparison, French rival Societe Generale <SOGN.PA> expects to
reach an ROE of 10 percent by 2015, a year earlier than BNP, while
UBS <UBSN.VX> and Deutsche Bank are respectively targeting 15
percent in 2016 and 12 percent in 2015.
"We find these (targets) fairly underwhelming," Jefferies analyst
Omar Fall wrote in a note to clients.
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"This is all unhelpful for a stock priced for meaningful capital
return," he added, arguing investors had already factored an
improving dividend into BNP's share price.
BNP Chief Executive Jean-Laurent Bonnafe shrugged off the
comparisons, telling journalists that a 10 percent ROE in the
current environment was the same as a pre-crisis 20 percent. The
bank's ROE in 2013 was 7.7 percent excluding one-off items.
"We are not an aggressive bank, we are a calm bank," he said.
"Investors might want more and analysts might want to write other
things ... (but) we need to balance all of the bank's interests."
BNP said its balance sheet was "rock solid", reporting a core Tier 1
capital ratio under tougher Basel III rules of 10.3 percent — topping its long-term target of 10 percent.
Like SocGen and other European banks, BNP is targeting new growth
avenues after years of shoring up its balance sheet due to tougher
rules on risk taking after the financial crisis.
Although BNP was seen as one of the winners of the crisis after
buying collapsed Benelux bank Fortis, it is heavily exposed to
relatively slow-growing mature European markets.
BNP's Machenil forecast the bank would benefit from a "moderate"
pick-up in the European economy in 2014. The bank also said it would
speed up cost cuts and continue expanding its footprint into
faster-growing U.S. and Asian markets.
It is shopping for medium-sized bolt-on acquisitions: in December it
agreed to buy Polish bank BGZ for $1.4 billion.
BNP's core retail markets of France, Italy, Belgium and Luxembourg
delivered a mixed performance in the fourth quarter, in what the
bank said was a "lackluster environment" in 2013. Pretax profit fell
in slow-growing France and struggling Italy.
BNP's corporate and investment banking unit, weighted more towards
bonds than equities, reported a 36.2 percent rise in pretax profit
to 350 million euros. A jump in equities revenue offset fixed-income
weakness, BNP said, mirroring broader market trends as central banks
rein in monetary stimulus.
($1 = 0.9011 Swiss francs)
(Additional reporting by Karen Freifeld
in New York and Aruna Viswanatha in Washington; editing by Andrew
Callus and Mark Potter)
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