(The following statement was released by the rating agency)
Nov 08 - Fitch Ratings says that BNP Paribas’s (BNPP) Q312 earnings were generally in line with the agency’s expectations and consequently have no rating implications. Operating profit for the quarter (EUR3.0bn as calculated by Fitch) was up by 13% compared with Q212 and much higher than Q311 results, which suffered from EUR2.1bn of impairments on Greek government debt. Fitch derives operating profit, its measure of underlying earnings, after excluding certain items such as revaluation of own debt (a loss of EUR774m in Q312).
Pre-impairment operating profit of the corporate and investment banking (CIB) business was up both quarter-on-quarter and year-on-year due to the good performance of the advisory and capital markets division, especially in fixed income. However, CIB operating profit (24% of total Q312 operating profit) was down slightly quarter-on-quarter due to an increase in loan impairment charges. Loan impairment charges represented a manageable amount (59bp of customer loans in Q312 on an annualised basis), but are higher than in the past as the bank no longer benefits from write-backs (net write-backs represented 24bp of customer loans in Q212). Moreover, financing activities continue to suffer from reduced volumes given the bank’s deleveraging plan. Operating expenses remain under control and the bank continues to have a good cost/income ratio for its CIB business (62% in Q312) compared with peers.
Operating profit from the retail banking business, which is the bank’s main earnings contributor (55% of Q312 operating profit) has been stable both quarter-on-quarter and year-on-year. Loan impairment charges are also stable for the business as a whole, but are high in Italian retail banking (110bp of customer loans in Q312 on an annualised basis vs. 112bp in Q212) and personal finance (162bp in Q312 vs. 166bp in Q212), which includes the consumer finance activities. Impairment charges are likely to increase given the weakening economic environment, but should remain manageable. The investment solutions business continues to perform well, but its contribution is less significant for the bank (15% of Q312 operating profit).
BNPP’s capital ratios compare well with those of peers. The Basel 2.5 core Tier 1 regulatory capital ratio rose to 11.4% at end-September 2012 (9.6% at end-2011), due to retained earnings and deleveraging. The bank has already achieved its deleveraging target of increasing its fully loaded Basel III ratio by 100 basis points by end-2012. The bank’s fully loaded Basel III ratio was 9.5% at end-September 2012, exceeding its 9% target by 1 January 2013.
BNPP’s liquidity buffer increased to EUR239bn at end-September 2012 (EUR200bn end-June 2012) and the proportion of deposits with central banks rose to 53% (46% end-June 2012). Deposits with central banks and investments in highly rated government bonds roughly cover the bank’s short-term wholesale funding excluding LTROs.