A booming trading environment, coupled with “super-strong” debt capital markets, helped power revenues at BNP Paribas SA’s (BNP.FR) corporate and investment bank during the third quarter.
The French bank Wednesday reported its figures for the three months to the end of September, which showed revenues in CIB had risen 6.8% to EUR2.38 billion compared with the previous quarter. This was up 33% year-on-year.
The positive results were driven in large part by the bank’s fixed-income business across both the primary and secondary debt markets. Excluding losses from sovereign bond sales last year, the business brought in EUR1.13 billion in the third quarter, 35% more than the second quarter and 38% up on the same period in 2011.
Frederic Janbon, head of fixed income at BNP Paribas, highlighted strong trading figures and a greater willingness on the part of issuers to turn to the capital markets for funding.
“Client volumes were up in credit and rates products, with activity in European government bonds particularly strong over the summer,” Janbon said. “Debt capital markets are super-strong as we’ve seen more mid-cap and first-time issuers coming to the market across a lot of our core franchises.”
The bank retained its number one position for all euro-denominated bond issuance over the period, according to Thomson Reuters. “We probably have the best corporate franchise in Europe and we stand to benefit as a lot of those clients look to diversify away from pure bank funding,” Janbon said.
Debt markets have rallied strongly this year thanks to liquidity provision by the European Central Bank and encouraging policy statements on intervention in the European periphery, but Janbon pointed out that BNP Paribas does not engage in proprietary trading and that the strong results in fixed income were not driven by inventory gains.
“That being said, renewed intervention linked to [Mario] Draghi’s very important announcement in the summer [on government bond purchases] has reassured investor clients and generated a lot of activity both inside Europe and in Asia and the US,” he said.
“That has had an impact on the primary side but it’s a trend that was already there. A combination of very low interest rates, which mechanically creates a demand for spread product and the extraordinary investor appetite for fixed income securities of all maturities was present since the beginning of the year,” Janbon said.
There was also quarter-on-quarter growth from equity and advisory – again, taking into account both new deals and trading – at BNP Paribas in the third quarter, though this came from a low base as activity in these markets remains subdued. Revenues of EUR444 million over the period were up 20% quarter-on-quarter and 51% year-on-year.
However, revenues of EUR805 million at the corporate bank – which houses BNP Paribas’ cash management and lending businesses – were down 21% on the previous three months and 22% lower than a year ago, with loan sales and planned deleveraging both having an impact.
Janbon told Financial News he was positive about the division’s prospects.
BNP Paribas’ originate to distribute model, by which the bank arranges financing for companies and then distributes this to capital markets investors, is one that he expects to deliver returns at both for both the corporate and investment bank.
Janbon said it was important that it is counted as a contributor to revenues at both: “Working together, they combine on one side a unique understanding of sectors and specialised financing; and on the other, a unique understanding of bond structuring and distribution of securities.”
He also noted the completion of the bank’s restructuring plan: reductions in risk-weighted assets at the corporate and investment bank and in its reliance on wholesale U.S. dollar funding were completed earlier in the year, and as of September BNP Paribas has exceeded its year-end target of reaching a 9% Basel III Core Tier 1 ratio.
“This puts us at a strong competitive advantage compared to most other banks,” he said. “The fact that all this is behind us is very important for our strategy. We have finished our deleveraging plan just as some of our European competitors are starting theirs. We are free to look at growth.”
Pretax profits at the division were EUR732 million, down 11% on the second quarter but up 7.3% year-on-year.
All figures exclude credit and debt valuation adjustments.
-Write to Matthew Attwood at matthew.attwood@dowjones.com
http://www.efinancialnews.com/story/2012-11-07/bnp-paribas-corporate-investment-bank-results-q3-2012
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