The FINANCIAL — The Board of Directors of BNP Paribas met on 2 May 2017.
The meeting was chaired by Jean Lemierre and the Board examined the Group’s results for the first quarter 2017.
GOOD BUSINESS GROWTH AND FURTHER INCREASE IN THE CET
BNP Paribas delivered a good performance this quarter, demonstrating the strength of its integrated and diversified business model.
Revenues totalled 11,297 million euros, up by 4.2% compared to the first quarter 2016. They included this quarter the exceptional impact of +148 million euros in capital gain from the sale of Shinhan shares and -7 million euros in Own Credit Adjustment (OCA) and own credit risk included in derivatives (DVA) compared to +365 million euros in the first quarter 2016.
The revenues of the operating divisions grew by 7.0%. They were down slightly by 0.3% at Domestic Markets1 due to the low interest rate environment, rose by 5.8% at International Financial Services and rebounded sharply by 20.0% at CIB which had experienced a very challenging market environment in the first quarter 2016.
At 8,119 million euros, operating expenses were up by 6.5% compared to the first quarter 2016. They included the exceptional 20 million euro impact (23 million euros in the first quarter 2016) of the acquisitions’ restructuring costs2 as well as the transformation costs of businesses for 90 million euros (23 million euros in the first quarter 2016), which amount was still limited this quarter due to the progressive launch of the programmes, according to BNP Paribas.
Operating expenses included 979 million euros in banking taxes and contributions (880 million euros in the first quarter 2016) booked this quarter for their entire amount for the year pursuant to IFRIC 21 “Taxes”: they thus included in particular the increase of the banking taxes and contributions accounted in the second and third quarter 2016 for 84 million euros3.
The operating expenses of the operating divisions rose by 4.9% compared to the first quarter 2016: +2.2% for Domestic Markets1, +2.6% for International Financial Services and +11.0% for CIB (weak base in the first quarter of last year). They included the impact of the application of IFRIC 21 reminded above and the effects of business growth in IFS and CIB.
The gross operating income of the Group thus decreased by 1.2%, to 3,178 million euros. It was up by 12.5% for the operating divisions.
The cost of risk was at a low level this quarter, at 592 million euros (757 million euros in the first quarter 2016) or 32 basis points of outstanding customer loans. This 21.8% decrease reflects in particular the good control of risk at loan origination, the low interest rate environment and the continued improvement in Italy as a result in particular to the repositioning on the better corporate clients.
The Group’s operating income was up by 5.1%, at 2,586 million euros (2,460 million euros in the first quarter 2016). It was up by 26.4% for the operating divisions.
Non operating items totalled 168 million euros (178 million euros in the first quarter 2016).
Pre-tax income thus came to 2,754 million euros compared to 2,638 million euros in the first quarter 2016 (+4.4%). It was up sharply by 25.1% for the operating divisions.
Net income attributable to equity holders was 1,894 million euros, up by 4.4% compared to the first quarter 2016. Excluding one-off items1, it came to 1,818 million euros (+13.2%).
The return on equity was 10.4% excluding one-off items. The return on tangible equity came to 12.3% excluding one-off items.
As at 31 March 2017, the fully loaded Basel 3 common equity Tier 1 ratio2 was 11.6% (11.5% as at 31 December 2016). The fully loaded Basel 3 leverage ratio3 came to 4.1%. The Liquidity
Coverage Ratio was 125% at 31 March 2017. Lastly, the Group’s immediately available liquidity reserve was 345 billion euros (305 billion euros as at 31 December 2016), equivalent to over one year of room to manoeuvre in terms of wholesale funding.
The net book value per share reached 75.1 euros, equivalent to a compounded annual growth rate of 6.2% since 31 December 2008, illustrating the continuous value creation throughout the cycle.
The Group is actively implementing the remediation plan agreed as part of the comprehensive settlement with the U.S. authorities and is continuing to reinforce its compliance and control procedures. It is also pursuing its ambitious Corporate Social Responsibility policy aimed at financing the economy in an ethical manner, being a positive agent for change, developing and engaging our people and combating climate change: the Group has just decided to become carbon neutral for its own operations in terms of greenhouse gas emissions.
RETAIL BANKING & SERVICES
DOMESTIC MARKETS
Domestic Markets reported sustained business activity. Outstanding loans were up by 5.2% compared to the first quarter 2016 with good growth in loans to individual and corporate clients. Deposits were up by 9.1% with strong growth across all the networks. The business activity of private banking was illustrated by increased assets under management: +8.0% compared to the level as at 31 March 2016. Hello bank! continued its business development and reached 2.6 million clients.
The operating division announced this quarter the acquisition of Compte-Nickel in France1 that will strengthen the set-up designed to new banking usage. With Compte-Nickel, whose exclusive partnership with the French Confédération des Buralistes was extended, the division will have, alongside Hello bank!, the retail banking digital offering and the branch network, a full range of solutions adapted to the needs of various customer segments. With over 540,000 accounts opened in three years, Compte-Nickel has had real success in France with a broad and diverse public. The real-time treatment of operations and the complete digitalisation of processes are major factors in its success. The target is to speed up the acquisition of new customers with an objective of 2 million accounts opened by 2020.
Revenues, at 3,952 million euros, were down slightly (-0.3%) compared to the first quarter 2016, the effect of business growth being more than offset by the impact of low interest rates. The division reported increased fees in all the networks.
Operating expenses (2,880 million euros) were up by 2.2% compared to the same quarter last year. Excluding the impact of IFRIC 213, they were up by only 0.8%, reflecting cost control.
Gross operating income was thus down by 6.4%, at 1,072 million euros, compared to the same quarter last year.
The cost of risk was down significantly (-20.0% compared to the first quarter 2016), due in particular to a significant decrease at BNL bc.
Thus, after allocating one-third of Domestic Markets Private Banking’s net income to the Wealth Management business (International Financial Services division), the division reported pre-tax income4 up 2.5% compared to the first quarter 2016, at 707 million euros.
French Retail Banking (FRB)
FRB showed a good business drive. Outstanding loans were up by 7.1% compared to a low base in the first quarter 2016 with a good pick-up in loans to individual and corporate clients. Deposits were up by 12.0% compared to the first quarter 2016, driven by the strong growth in current accounts. Off balance sheet savings showed a good performance (rise by 13.9% of mutual fund outstandings and by 3.8% of life insurance outstandings compared to 31 March 2016) and private banking’s assets under management strongly increased (+10.7%). The division also continued to expand its digital footprint with the good development of Hello bank! which already has 302,000 clients (+17% as compared to 31 March 2016) and launched the contactless mobile phone payment of paylib.
Revenues totalled 1,620 million euros, down by 1.4% compared to the first quarter 2016. Net interest income1 was down by 4.4% given the impact of persistently low interest rates. For their part, fees1 rose by 2.7% with a rise in particular of financial fees.
At 1,184 million euros, operating expenses1 were up by 0.9% compared to the first quarter 2016. Excluding the impact of IFRIC 212, they were up by only 0.5%.
Gross operating income1 thus came to 436 million euros, down by 7.2% compared to the same quarter last year.
The cost of risk1 was still low, at 79 million euros (73 million euros in the first quarter 2016). It was 21 basis points of outstanding customer loans.
Thus, after allocating one-third of French Private Banking’s net income to the Wealth Management business (International Financial Services division), FRB posted 319 million euros in pre-tax income3, down by 11.2% compared to first quarter 2016 due to the impact of persistently low interest rates and despite the good pick-up in its sales and marketing drive.
BNL banca commerciale (BNL bc)
The outstanding loans of BNL bc were up by 2.3% compared to the first quarter 2016 with growth in the individual and corporate clients. Deposits rose by 11.3% with a sharp rise in current accounts. BNL bc delivered a good performance in off balance sheet savings: insurance outstandings rose by 8.5% and mutual fund outstandings were up by 12.4% compared to 31 March 2016. BNL bc continued to develop its digital footprint with already over 500,000 downloads of BNL’s mobile banking apps (online banking, brokerage and payment services).
Revenues were down 1.3% compared to the first quarter 2016, at 727 million euros. Net interest income4 was down by 5.5% due to the persistently low interest rate environment. Fees4 were up significantly by 6.7% in connection with the good development of off balance sheet savings and private banking.
Operating expenses, at 469 million euros, rose by 1.6% (+1.2% excluding the impact of IFRIC 21).
Gross operating income4 thus totalled 258 million euros, down by 6.2% compared to the same quarter last year.
The cost of risk, at 115 basis points of outstanding customer loans, was down by 46 million euros compared to the first quarter 2016 reflecting a gradual improvement of the quality of the loan portfolio.
Thus, after allocating one-third of Italian Private Banking’s net income to the Wealth Management business (International Financial Services division), BNL bc posted 18 million euros in pre-tax income (+26 million euros compared to the first quarter 2016).
Belgian Retail Banking
BRB reported sustained business activity. Loans were up by 4.7% compared to the first quarter 2016 with a good growth in loans to corporate customers and growth in mortgages. For their part, deposits rose by 3.8% thanks in particular to a strong growth in current accounts.
Revenues were up by 1.5%, compared to the first quarter 2016, to 931 million euros: net interest income1 rose by 0.6%, the effect of volume growth being partly offset by the low interest rate environment. Fees1 rose by 4.4% as a result of business growth.
Operating expenses rose by 4.0% compared to the first quarter 2016, at 823 million euros. Excluding the impact of IFRIC 212, they rose by only 0.2%, reflecting a good control.
Gross operating income, at 108 million euros, was down by 14.0% compared to the same quarter last year.
The cost of risk was nil this quarter as provisions were offset by write-backs. It was 21 million euros in the first quarter 2016.
After allocating one-third of Belgian Private Banking’s net income to the Wealth Management business (International Financial Services division), BRB generated 96 million euros in pre-tax income, up by 9.5% compared to the first quarter 2016.
Other Domestic Markets business units (Arval, Leasing Solutions, Personal Investors and Luxembourg Retail Banking)
Domestic Markets’ specialised businesses showed a good overall drive. The business activity of Arval was sustained and the financed fleet showed strong growth (+7.3% compared to the first quarter 2016). The financing outstandings of Leasing Solutions were up (+6.1% at constant scope and exchange rates) thanks to the good growth of the business. Personal Investors saw a good level of new client acquisition.
Luxembourg Retail Banking’s outstanding loans rose by 2.4% compared to the first quarter 2016, with growth in mortgage loans and corporate loans, and deposits were up by 20.3% with good inflows notably on the corporate segment.
Revenues were up on the whole by 1.2% compared to the first quarter 2016, at 674 million euros. Excluding a non-recurring item, they were up by 2.8%, driven by Personal Investors, Luxembourg Retail Banking and Arval.
Operating expenses3 rose by 3.1% compared to the first quarter 2016, to 405 million euros. Excluding the impact of IFRIC 21 this quarter4, they rose by 2.4% as a result of business development.
The cost of risk3 was down by 18 million euros compared to the first quarter 2016, standing at 14 million euros.
Thus, the contribution of these four business units, after allocating one-third of Luxembourg Private Banking’s net income to the Wealth Management business (International Financial Services division), was 274 million euros, up sharply by 9.0% compared to the first quarter 2016.
INTERNATIONAL FINANCIAL SERVICES
The International Financial Services’ businesses reported a good business drive: Personal Finance had a sustained business activity and announced the joint acquisition with PSA of General Motors Europe’s financing activities; Europe-Mediterranean and BancWest posted good growth in their activity; the Insurance and Wealth and Asset Management businesses generated very good asset inflows.
At 3,909 million euros, revenues were up by 5.8% compared to the first quarter 2016, with good growth at Personal Finance, Europe-Mediterranean and Wealth and Asset Management. Insurance rebounded significantly compared to a weak base in the first quarter 2016 when the market context was very unfavourable.
Operating expenses (2,506 million euros) were up by 2.6% compared to the same quarter last year, generating a largely positive jaws effect.
Gross operating income thus came to 1,404 million euros, up by 11.9% compared to the same quarter last year.
The cost of risk was at a low level, at 315 million euros, down by 25 million compared to the first quarter 2016.
Operating income thus came to 1,089 million euros, up by 19.0% compared to the same quarter last year.
International Financial Services’ pre-tax income was thus up significantly, at 1,222 million euros (+16.2% compared to the first quarter 2016).
Personal Finance
Personal Finance announced this quarter the joint acquisition with PSA of General Motors Europe’s financing activities1. The acquisition price for 50% of the capital was 450 million euros equivalent to a multiple of 0.8 times the pro forma book value. Under the partnership agreement, BNP Paribas will fully consolidate the entity. General Motors Europe’s financing activities meet the financing needs of close to 1,800 car dealers in 11 European countries and amounted to about 9.6 billion euros in outstandings at the end of 2016, of which about 5.8 billion euros are financed with deposits or securitisation.
Personal Finance also continued its very good organic growth. Outstanding loans were up by +11.2% compared to the first quarter 2016 in connection with the increase in demand in the Euro zone and the effect of new partnerships. Pursuant to its development plan, the business signed this quarter business agreements in new sectors (tourism with TUI in France) and in new countries (Austria in home furnishings).
Revenues were up by 4.5% compared to the first quarter 2016, to 1,201 million euros, in connection with the rise in volumes and the growing positioning on products with a better risk profile. They were driven by a good drive in Italy, Spain and Germany.
Operating expenses were up by 4.1% compared to the first quarter 2016, at 634 million euros. Excluding the impact of IFRIC 211, they were up by 3.3% as a result of business development.
Gross operating income thus came to 568 million euros, up by 5.0% compared to the same quarter last year.
The cost of risk was at a low level, at 240 million euros (221 million euros in the first quarter 2016), or 146 basis points of outstanding customer loans, due to the low interest rate environment and the growing positioning on products with a better risk profile (in particular car loans).
Personal Finance’s pre-tax income thus came to 353 million euros, up by 6.1% compared to the first quarter 2016, reflecting the business’ good business drive.
Europe-Mediterranean
Europe-Mediterranean continued its good growth. Outstanding loans rose by 5.4%2 compared to the first quarter 2016 with good growth in all regions and deposits were up by 11.1%2. There was a sustained development in digital with over 380,000 clients already for CEPTETEB in Turkey and more than 205,000 clients for BGZ OPTIMA in Poland.
At 592 million euros, revenues were up by 6.2%2 compared to the first quarter 2016, as a result of volume increase.
Operating expenses3, at 424 million euros, rose by 4.9%2 compared to the same quarter last year, due to business development.
The cost of risk3 totalled 67 million euros (96 million euros in the first quarter 2016), or 70 basis points of outstanding customer loans, and benefited this quarter from 40 million euros in provision write-backs.
After allocating one-third of Turkish Private Banking’s net income to the Wealth Management business, Europe-Mediterranean generated 149 million euros in pre-tax income, up by 28.2% compared to the same quarter last year.
BancWest
BancWest continued its strong commercial drive. Loans were up by 7.7%2 compared to the first quarter 2016 with sustained growth in loans to corporate and individuals. Deposits were up by 11.4%2 with a sharp rise in current and savings accounts.
The quarter was also marked by the successful placement of 20.6% of First Hawaiian Bank in the market. Now 62.0% owned, FHB will continue to be fully consolidated as long as the Group maintains its control.
Revenues, at 761 million euros, were down by 5.0% compared to the first quarter 2016 which included significant capital gains from the sale of securities and loans. Excluding this effect, they were up by 5.3%, as a result of volume growth.
At 556 million euros, operating expenses1 rose by only 0.8% compared to the first quarter 2016, reflecting good cost control.
The cost of risk (22 million euros) was still low, at 13 basis points of outstanding customer loans (25 million euros in the first quarter 2016).
Thus, after allocating one-third of U.S. Private Banking’s net income to Wealth Management business, BancWest posted 177 million euros in pre-tax income (-23.1%3 compared to the first quarter 2016 and +16.0% excluding capital gains from the sale of securities and loans in the first quarter 2016).
Insurance and Wealth and Asset Management
Insurance and Wealth and Asset Management’s assets under management5 reached 1,042 billion euros as at 31 March 2017 (+10.4% as compared to 31 March 2016). They rose by 32 billion euros compared to 31 December 2016 due in particular to very good net asset inflows totalling 15.2 billion euros (good asset inflows at Wealth Management in particular in France; strong asset inflows at Asset Management, in particular into diversified, money market and bond funds; good asset inflows in Insurance particularly in unit-linked policies) and a positive performance effect of 16.1 billion euros.
As at 31 March 2017, assets under management5 broke down as follows: Asset Management (433 billion euros), Wealth Management (355 billion euros), Insurance (230 billion euros) and Real Estate Services (24 billion euros).
The Insurance sales and marketing drive was illustrated this quarter by the strengthening of the partnership with Sumitomo Mitsui6 which notably aims to launch new insurance products in Japan leveraging its distribution network.
In Insurance, revenues, at 597 million euros, rebounded significantly by 31.0% compared to the weak base in the first quarter 2016 which saw a very challenging market context. The business reported a good performance of the Protection insurance business and a pick-up in the Savings business in Asia. Operating expenses, at 326 million euros, rose by 5.5%, as a result of good business development. At 326 million euros, pre-tax income was thus up sharply by 63.8% compared to the same quarter a year earlier.
Wealth and Asset Management’s revenues (773 million euros) were up across all the businesses and rose by 7.0% compared to the first quarter 2016 which saw an unfavourable market environment. Operating expenses, at 576 million euros, were up 1.6%, generating a positive jaws effect. At 217 million euros, Wealth and Asset Management’s pre-tax income, after receiving one-third of the net income of private banking in the domestic markets, in Turkey and in the United States, was thus up by 29.7% compared to the first quarter 2016.
CORPORATE AND INSTITUTIONAL BANKING (CIB)
CIB’s businesses had an excellent quarter.
Revenues, at 3,223 million euros, rebounded sharply compared to the first quarter 2016 which saw an unfavourable market environment (+20.0%).
At 1,754 million euros, Global Markets’ revenues were up sharply compared to the first quarter 2016 (+33.1%) with a significant pick-up in client business compared to a very challenging market context at the beginning of the year 2016.
The revenues of FICC1, at 1,174 million euros, were up by 31.9% compared to the first quarter 2016 with strong growth of rates, a good performance of forex and commodities as well as a solid rise of credit and bond issues where the business ranked number 1 for all bond issues in euros and number 9 for all international bond issues. At 580 million euros, the revenues of the Equity and Prime Services business were up very sharply (+35.5%) with strong growth of Prime Services and a rebound in the derivative business.
The VaR, which measures market risks, was very low (31 million euros compared to 43 million euros in the first quarter 2016). The business also continued the optimisation of resources with the sale of a sub-profitable portfolio accounting for 2.5 billion euros in risk-weighted assets.
Securities Services’ revenues, at 478 million euros, rose by 8.5% compared to the first quarter 2016, due to good business development. Assets under custody were up by 10.1% and the number of transactions by 7.0% compared to the first quarter 2016. The business won significant new mandates: Mapfre (60 billion euros in assets under custody) and Actiam (56 billion euros in assets under custody).
Corporate Banking’s revenues, at 991 million euros, were up by 6.7% compared to the first quarter 2016 with good growth in all regions. Fees were up sharply (+19%) compared to a weak base in the first quarter 2016. The business had a good start of the year in advisory services, recorded solid performances in aircraft finance, export and media-telecom in Europe and showed robust growth in the transaction businesses (trade finance, cash management). Loans, at 135.3 billion euros, were up by 7.2% compared to the first quarter 2016. Deposits continued their growth, at 132.8 billion euros (+20.5% compared to the first quarter 2016), as a result of the good growth of cash management.
At 2,506 million euros, CIB’s operating expenses were up by 11.0% compared to the first quarter
2016 due to business growth, producing a very positive jaws effect benefiting from cost saving measures implemented.
CIB’s cost of risk was a 54 million euros net write-back (net provision of 28 million euros in the first quarter 2016) as the provisions were more than offset by write-backs. Corporate Banking’s cost of risk was in particular a 57 million euros net write-back (net provision of 55 million euros in the first quarter 2016). Global Markets’ cost of risk was 3 million euros (net write-back of 27 million euros in the first quarter 2016).
The operating income of CIB was thus up very sharply by 92.6% to stand at 770 million euros.
CIB reported thus an excellent performance and generated 778 million euros in pre-tax income, up sharply (+93.0%) compared to a low base in the same quarter last year when the market environment was unfavourable and client volumes significantly lower.
CORPORATE CENTRE
Corporate Centre revenues totalled 358 million euros compared to 618 million euros in the first quarter 2016. They included the exceptional impact of +148 million euros of the capital gain from the sale of Shinhan shares, -7 million euros in Own Credit Adjustment (OCA) and Debit Valuation Adjustment (DVA) (+365 million euros in the first quarter 2016) as well as a very good contribution by Principal Investments.
Operating expenses totalled 308 million euros compared to 182 million euros in the first quarter 2016. They included the exceptional impact of 20 million euros in the acquisitions’ restructuring costs1 (23 million euros in the first quarter 2016) and 90 million euros in businesses’ transformation costs (23 million in the first quarter 2016).
The cost of risk totalled 11 million euros (9 million euros in net write-backs in the first quarter 2016).
Non-operating items totalled 11 million euros (31 million euros in the first quarter 2016).
The Corporate Centre’s pre-tax income was thus 49 million euros compared to 475 million euros in the first quarter 2016.
FINANCIAL STRUCTURE
The Group’s balance sheet is rock-solid.
The fully loaded Basel 3 common equity Tier 1 ratio was slightly higher than 11.6% as at 31 March 2017, up by 15 basis points compared to 31 December 2016, due primarily to the sale of 20.6% of First Hawaiian Bank (+10 bp). It takes into account a 50% dividend pay-out ratio.
The Basel 3 fully loaded leverage ratio, calculated on total Tier 1 capital, totalled 4.1% as at 31 March 2017.
The Liquidity Coverage Ratio stood at 125% as at 31 March 2017.
The Group’s liquid and asset reserve immediately available totalled 345 billion euros (305 billion euros as at 31 December 2016), which is equivalent to more than one year of room to manoeuvre in terms of wholesale funding.
The evolution of these ratios illustrates the Group’s ability to manage its balance sheet in a disciplined manner.
Commenting on these results, Chief Executive Officer Jean-Laurent Bonnafé stated:
“With 1.9 billion euros in net income, BNP Paribas delivered a very good performance this quarter.
The revenues of the operating divisions were significantly higher thanks to good business growth. Costs were well under control and the cost of risk was down.
The Group’s balance sheet is rock-solid and the further increase in the fully loaded Basel 3 common equity Tier 1 ratio to 11.6% testifies this.
I would like to thank all the employees of the Group whose dedicated work made these results possible, allowing to start the 2020 plan in good conditions.”
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