The FINANCIAL — On 30 July 2010, the Board of Directors of BNP Paribas, in a meeting chaired by Michel Pébereau, examined the Group’s second quarter results 2010 as well as the financial statements for the first half of the year.
QUARTERLY NET PROFITS OF 2.1 BILLION EUROS
In the second quarter of this year, in a less unfavourable economic environment and despite a very challenging market environment, BNP Paribas Group confirmed the effectiveness of its diversified and integrated business model applied to its new size including BNP Paribas Fortis’ businesses. It achieved a very solid performance again, further accentuated by the decline in the cost of risk. Net profit (attributable to equity holders) was 2,105 million euros, up 31.2% compared to the second quarter 2009 and down only 7.8% compared to the very high level in the first quarter 2010.
The Group posted 11,174 million euros in revenues, up 11.8%, stable at constant scope and exchange rates compared to the second quarter 2009. The huge revenue growth in retail banking and the Investment Solutions’ business units offset CIB’s fall in revenues. The revaluation of the Group’s own debt resulted in revenues of 235 million euros compared to a 237 million euros charge in the second quarter 2009. Operating expenses, which totalled 6,414 million euros, were up 10.2% (-1.2%(1)) and gross operating income rose 14.0% (+1.7%(1)) compared to the second quarter 2009.
The cost of risk, which was 1,081 million euros, continued the downward trend reported in previous quarters. It was cut more than half from the second quarter 2009, which led to a doubling of operating income. At 3,676 million euros, pre-tax income soared 69.4% compared to the second quarter 2009.
The average corporate income tax rate this quarter was unusually high (34.2%) due to 160 million euros in one-off charges associated with the legal integration of the Fortis Group’s businesses in Italy and the U.S..
“For the first half of the year as a whole, the Group’s revenues were 22,704 million euros, up 16.6% compared to the first half 2009. At constant scope and exchange rates revenues were flat (+0.2%) during the same period. Good control of operating expenses (-1.4%(1)) pushed gross operating income up 2.3%(1) to 9,694 million euros, illustrating the Group’s powerful cash flow generating capacity. Thanks to a significant shrinking of the cost of risk, which was cut by nearly half compared to the first half 2009, net income attributable to equity holders was 4,388 million euros, up 38.8% compared to the first half 2009,” BNP Paribas reports.
So, half yearly net earnings per ordinary share were 3.6 euros (+25% compared to the first half 2009). Annualised return on equity came to 13.7% compared to 11.8% in the first half 2009.
The far-reaching plan to tie-up the entities of BNP Paribas Fortis and BGL BNP Paribas with those of the Group is being done quickly thanks to the dedication and support of staff across all business units, functions and territories. In the first half of the year, 123 million euros in synergies were booked and are added to the 120 million euros already included in the 2009 financial statements. In addition to the 243 million already recorded, the full year effect of synergies already implemented, and which will be reflected in accounting terms in the coming quarters, is 159 million euros. Thus, the total amount of synergies already achieved, i.e. 402 million euros, is ahead of the plan announced.
POSITIVE CONTRIBUTION OF ALL THE BUSINESS UNITS
This quarter, all the Group’s operating divisions continued to pursue their business development and made a positive contribution to the Group’s income. BNP Paribas thereby demonstrated the robustness of its diversified, integrated and customer-driven banking model.
RETAIL BANKING
French Retail Banking (FRB)
The French banking network remained dedicated to serving its customers. Outstanding loans grew 3.3%(1) compared to the second quarter 2009, driven in particular by strong demand for mortgages whose outstandings rose 7.8%(1). Demand for corporate loans remained low. Net deposit asset inflows were high enjoying a favourable structural effect: compared to the second quarter 2009, sight deposits were up +7.0%(1), savings accounts up +2.1%(1) and market rate deposits were down -29.1%(1).
This good sales and marketing drive helped FRB post 1,732 million in revenues(2), up 5.9% compared to the second quarter 2009. At constant scope and exchange rates, it was up 4.0%. Net interest income, driven by volume growth and deposits’ favourable structural trend, edged up +3.4%(1). Fees were up 4.8%(1) despite the adverse effect of equity market volatility on financial fees.
The good revenue drive, combined with a 3.0%(1) rise in operating expenses due in particular to an increase in the employee incentive and profit-sharing scheme, drove gross operating income up 5.9%(1) compared to the second quarter 2009.
The cost of risk was 35bp of customers’ outstanding loans. It was down compared to the second quarter 2009 (48bp) and flat compared to the first quarter 2010 (37bp).
After allocating one-third of French Private Banking’s net income to the Investment Solutions division, FRB’s pre-tax income, excluding PEL/CEL effects, totalled 479 million euros, up 16.5%(1) compared to the second quarter 2009.
For the first half of the year as a whole, revenues(2) were up 4.5%(1) and operating expenses(2) 2.4%(1) compared to the first half 2009, in keeping with the target of at least a one point positive jaws effect for the entire year. The cost/income ratio(2) improved by 1.3 points(1) at 63.1%. This good operating performance combined with the stabilisation of the cost of risk helped FRB generate 986 million euros in pre-tax income, up 12.5%(1) for the period, after allocating one-third of French Private Banking’s net income to the Investment Solutions division.
BNL banca commerciale (BNL bc)
In an economic environment that was still challenging, BNL bc continued to pursue its business development with the opening of new branches and the consistent expansion of its customer base. The net increase in the number of new individual cheque and deposit accounts was 13,000 this quarter, bringing the number to 30,000 for this half, a level comparable to that of the first half 2009.
Outstanding loans were flat(1) compared to the second quarter 2009 with an upswing in corporate investment loans. Deposits were up 5.8%(1) during the same period, thanks to a good drive in sight deposits. Net asset inflows were positive in life insurance and mutual funds in the Italian market which saw assets flowing out(3) of investment funds this quarter.
Revenues(4), which totalled 755 million euros, edged up 1.9% compared to the second quarter 2009. At constant scope and exchange rates, it was up 1.6% thanks in particular to the good drive in outstandings and growing revenues from fees.
With the initial effects of additional synergies from the integration of Banca UCB and Fortis Italia, operating expenses were down 1.4%(1).
The cost of risk was 108bp, a fairly constant level since the fourth quarter 2009 but up 14bp compared to the second quarter 2009 due to the SME segment.
After allocating one-third of Italian Private Banking’s net income to the Investment Solutions division, BNL bc’s pre-tax income came to 103 million euros, down 18.3%(1) compared to the second quarter 2009.
For the first half of the year as a whole, the 2.3%(1) rise in revenues, combined with a decline in operating expenses (-0.7%(1)), drove gross operating income up 6.7%(1) compared to the first half 2009 and a positive 3 point jaws effect, in line with the target set for 2010. The cost/income ratio(4) improved by a further 1.7 points(1) at 57.9%. Affected by the rise in the cost of risk (+42.8%(1)), pretax income, after allocating one-third of Italian Private Banking’s net income to the Investment Solutions division, was 226 million euros, down 27.7%(1) compared to the first half 2009.
BeLux Retail Banking
BeLux Retail Banking, the name of the retail banking operations in Belgium and Luxembourg that are part of BNP Paribas Fortis and BGL BNP Paribas, pursued its sales and marketing drive and continued to capitalise on customers’ renewed confidence, as illustrated by the vigorous growth in volumes.
Deposits grew 13.2%(1) compared to the second quarter 2009 with good asset inflows in sight deposits (+6.8%(1)) and savings. Outstanding loans edged up 1.4%(1) with significant growth in mortgages in Belgium and Luxembourg (+8.9%(1)) and a rise a corporate loans (+3.7%(1)).
Supported by this very solid sales and marketing performance, revenues(5) were up 7.2%(1) to 836 million euros, compared to the second quarter 2009 pro forma.
Thanks to cost control initiatives as a result of the business plan, operating expense growth was limited to 2.0%(1) compared to the second quarter 2009 pro forma, enabling BeLux Retail Banking to post gross operating income up 22.9%(1) during the period.
The cost of risk came to 32bp, down compared to the high level of the second quarter 2009 (66bp pro forma).
After allocating one-third of Belgian Private Banking’s net income to the Investment Solutions division, BeLux Retail Banking’s pre-tax income totalled 156 million euros. It was more than threefold(1) that of the second quarter 2009 pro forma.
For the first half of the year as a whole, the 8.8%(1) growth in revenues, combined with a moderate rise in operating expenses (+2.0%(1)), led to a considerable rise in gross operating income (+29.3%(1)) compared to the first half 2009 pro forma and a positive 6.8 point jaws effect, surpassing the 3 point target set for 2010. The cost/income ratio(5) improved a further 4.7 points(1), at 70.4%.
After allocating one-third of Belgian Private Banking’s net income to the Investment Solutions division, pre-tax income came to 391 million euros, twice(1) what it was in the first half 2009, a weak base due to a context of crisis.
Europe-Mediterranean
The Europe-Mediterranean business unit continued to integrate BNP Paribas Fortis’ entities: the signing of a Merger Agreement between TEB and Fortis Bank Turkey on 3 June created Turkey’s ninth largest bank by assets with 640 branches. It will support a large customer base in their plans, generating cross-selling opportunities with CIB and Investment Solutions. The business plan is in the process of being formulated.
Europe-Mediterranean’s revenues, which totalled 463 million euros, slipped down 1.1% compared to the second quarter 2009. At constant scope and exchange rates, they were down 7.7% despite the positive revenue trend in Meghreb (+10.0%(1) in Morocco, +11.0%(1) in Tunisia, +15.0%(1) in Algeria). Outstanding loans were down 3.1%(1) compared to the second quarter 2009, due in particular to a sharp drop in Ukraine during the crisis. Deposits were virtually flat (-0.9%(1)).
Operating expenses, which totalled 350 million euros, were up 4.4%(1) during the period.
Thanks to an improvement in the economic environment in Ukraine and to the absence of any significant changes in other countries, the business unit’s cost of risk, at 143bp, was substantially below the level in the second quarter 2009 (337bp) and flat compared to the first quarter 2010.
This diminution of the cost of risk helped Europe-Mediterranean confirm its return to a break-even point and to post 20 million euros in pre-tax income compared to pre-tax losses of 39 million euros in the second quarter 2009.
For the first half of the year as a whole, the 8.7%(1) decrease in revenues, combined with a slight rise in operating expenses (+1.6%(1)), led to a 29.2%(1) contraction in gross operating income compared to the first half 2009. Thanks to a sharp decline in the cost of risk (-58.6%(1)), pre-tax income came, however, to 64 million euros compared to a pre-tax loss of 2 million euros during the same period a year earlier.
BancWest
In a context of a fragile recovery in the United States, BancWest’s revenues, which were 601 million euros, rose 2.3% at constant scope and exchange rates (+8.9% at current scope and exchange rate) compared to the second quarter 2009: deposits continued vigorous growth (+7.3%(1)) and, combined with a 6bp rise in net interest margin, helped offset the continued shrinking of outstanding loans (-5.4%(1)). This diverging trend in outstandings drove BancWest’s loan-to-deposits ratio down to 103% from 117% in the second quarter 2009.
Thanks in particular to the full effect of the cost-cutting programme introduced in the second quarter 2009, operating expenses were down 4.6%(1) and gross operating income was up 11.6%(1).
At 132bp, the cost of risk was again down this quarter, both compared to the very high level in the second quarter 2009 (289bp) and compared to the first quarter 2010 (163bp). In the current economic environment, the quality of the loan book is improving with delinquency rates falling across all individual customer segments.
Growth in gross operating income, combined with the sharp decline in the cost of risk enabled BancWest to post 153 million euros in pre-tax income compared to a pre-tax loss of 62 million euros in the second quarter 2009. The return to profits by the Group’s U.S. subsidiary was thereby confirmed.
For the first half of the year as a whole, the 1.3% growth in revenues at constant scope and exchange rates, combined with a 2.9%(1) fall in operating expenses, drove gross operating income up 6.6%(1) compared to the first half 2009 and led to a 2.3 point(1) improvement in the cost/income ratio, at 53.8%. The reduction by nearly half of the cost of risk during the period brings the pre-tax income to 249 million euros compared to a loss of 88 million euros during the same period a year
earlier.
Personal Finance
Personal Finance continued to pursue its growth and industrialisation strategy with the implementation of the Findomestic integration plan in Italy, the formation of a business alliance with BPCE in France to create a common IT platform and the creation of a joint-venture with Commerzbank to manage consumer loans for a network of 1,200 branches and 11 million customers in Germany.
Personal Finance’s revenues, which amounted to 1,250 million euros, were up 17.5% compared to the second quarter 2009. At constant scope and exchange rates, they were up 4.8% thanks to the growth in consolidated outstandings (2.7%(1)), driven notably by mortgages in France and the Netherlands and consumer loans in Latin America.
Due to a pickup in marketing expenses, operating expenses were up 4.9%(1) compared to the very low level of the second quarter 2009. Gross operating income was up 4.7%(1).
After a period of stabilisation during the previous quarters, the cost of risk marked a decline, at 237bp, compared to 255bp in the second quarter 2009 and 258bp in the first quarter 2010.
Good operating performances, combined with a decline in the cost of risk, drove pre-tax income up sharply to 196 million euros (+44.4%(1)) compared to the same period a year earlier.
For the first half of the year as a whole, the rise in revenues (+6.0%(1) compared to the first half 2009), combined with limited rise in operating expenses (+3.0%(1)) produced an 8.9%(1) rise in gross operating income and a positive 3 point jaws effect, consistent with the 2 point target for the whole year 2010. The cost/income ratio, at 47.3%, improved by 1.4 points(1). The cost of risk was flat(1) during the period. Pre-tax income totalled 377 million euros, up 36.5%(1) compared to the first half 2009.
Equipment Solutions
Again this quarter, the business unit’s revenues benefited from a positive trend in the used vehicles market, totalling 396 million euros, up 36.1% compared to the second quarter 2009. At constant scope and exchange rates, they were up 23.7%. Operating expenses edged down 1.5%(1) pushing gross operating income up 57.4%(1). The cost of risk, which was 72 million euros, was down 34.4%(1) compared to the second quarter 2009.
Thus, pre-tax income amounted to 125 million euros, compared to 30 million euros in the second quarter 2009.
For the first half of the year as a whole, revenues soared 32.8%(1) and operating expenses edged up only 1.0%(1), which led to a doubling(1) of gross operating income. The 21.7%(1) decline in the cost of risk helped the business unit generate 220 million euros in pre-tax income, rebounding considerably compared to the very low level (10 million euros) of the first half 2009.
INVESTMENT SOLUTIONS
In a challenging environment characterised by bearish equity markets, widening credit spreads and, therefore, customers’ greater aversion to risk, the Investment Solutions division had a solid operating performance. The division’s revenues, which totalled 1,539 million euros, were up 15.7% compared to the second quarter 2009. At constant scope and exchange rates, they were up 5.7%, driven by Insurance (+21.2%(1)), by the Securities Services business’ revenues (+2.7%(1) thanks in particular to growing outstandings) and by Wealth and Asset Management’s ability to hold up well
(+1.1%(1)).
Thanks to the moderate growth in operating expenses (3.9%(1)), the division’s pre-tax income came to 473 million euros, up sharply by 32.1% compared to the second quarter 2009 (+24.8%(1)). This good performance illustrates the effectiveness of the division’s integrated model which enables all its perfectly complementary business units bring in, manage, protect and administer the assets of its clients.
Assets under management, which totalled 874 billion euros, were up sharply 11.0%(1) compared to 30 June 2009 and flat compared to 31 March 2010. In an adverse market environment and very low interest rates, the Asset Management business unit saw 8.9 billion euros in asset outflows this quarter. But good asset inflows in Insurance (2.2 billion euros) in France, Belgium, Luxembourg and Taiwan, in Private Banking (1.4 billion euros) and in Personal Investors (0.7 billion euros) helped curtail the division’s net asset outflows to 4.4 billion euros.
For the first half of the year as a whole, the division’s revenues totalled 2,983 million euros, up 20.5% compared to the first half 2009 (+5.0%(1)). Thanks to the good control of operating expenses (+1.5%(1)), gross operating income was up 14.4%(1) and pre-tax income amounted to 940 million euros, up sharply compared to the first half 2009 (+28.6%(1)).
CORPORATE AND INVESTMENT BANKING (CIB)
Thanks to the diversity of its business model, which offers clients a combination of market and financing solutions, the latter providing a steady and consistently growing stream of revenues, the CIB division demonstrated that it could hold up well in a challenging environment such as this second quarter.
The division’s revenues, which were 2,685 million euros, were down 30.3% (-37.5%(1)) compared to the exceptionally high level of the second quarter 2009 and 28.4% compared to the first quarter 2010.
In a highly adverse market environment, characterised by extreme volatility and reduced liquidity fuelled by concerns of some investors about European assets, Capital Market’s revenues were down at 1,526 million euros compared to the exceptional level of 3,039 million euros in the second quarter 2009.
The revenues of the Fixed Income business unit, which came to 1,258 million euros, were affected by the considerable contraction of primary markets, the widening credit spreads and the sharp rise in volatility. However, the business unit ranked number 1 for euro-denominated bond issues and also for euro-denominated corporate bond issues(6), which again illustrates the strength of the business unit’s franchise and its dedication to serving its clients. On the foreign exchange market, the business unit enjoyed good performance on the G10 currencies.
The Equities and Advisory business unit’s revenues plummeted to 268 million euros. Retail banking clients’ demand for simple capital-guaranteed structured products remained sustained. However, in order to curtail the potential impact of jumpy markets, the business unit voluntarily restricted its risks by bearing the higher hedging costs.
The Financing Businesses’ revenues totalled 1,159 million euros, up significantly compared to the second quarter 2009 (37.7%(1)). They were up 12.2% compared to the first quarter 2010, driven by the significant business in energy and commodity finance as well as asset finance and project finance, by the pickup in acquisition financing as well as by the flow businesses holding up well, especially in Europe and the United States. This very solid performance illustrates the business unit’s strong customer lending activity.
The division’s operating expenses came to 1,485 million euros, down 17.0%(1) compared to the second quarter 2009.
This quarter, for the first time since the second quarter 2007, provision write-backs exceeded new provisions. The balance was +61 million euros compared to net provisions of 844 million euros and 207 million respectively in the second quarter 2009 and the first quarter 2010. This sharp drop in the cost of risk reflected the continued improvement of the quality of the loan book which saw no new significant doubtful loans.
The division thus posted 1,278 million euros in pre-tax income, down only 16.4%(1) compared to the exceptionally high level in the second quarter 2009.
For the first half of the year as a whole, CIB’s revenues came to 6,437 million euros, down only 15.1% compared to the exceptional level in the first half 2009. The cost/income ratio was 51.9%, up 6.9 points compared to the exceptionally low level in the first half 2009. Given the sharp drop in the cost of risk (146 million euros compared to 1,541 million in the first half 2009), pre-tax income totalled 2,975 million euros, up 12.8% (+3.6%(1)) compared to the same period a year earlier.
This very good performance came amidst a 7.3% reduction in allocated equity compared to the first half 2009 due, in particular, to reduced market risks and optimised capital management.
CORPORATE CENTRE
Revenues from the “Corporate Centre” totalled 1,025 million euros compared to negative revenues of 246 million euros in the second quarter 2009, affected by non-recurring items (-440 million euros securities impairment charge and -237 million euros from the appreciation of the Group’s own debt). Conversely, they were inflated this quarter by 235 million euros, the amount of the depreciation of the Group’s own debt. In addition to this effect, they include 158 million euros of BNP Paribas Principal Investment’s revenues and a 177 million euro amortisation of the banking book’s fair-value adjustment (Purchase Accounting).
Operating expenses totalled 283 million euros (184 million euros in the second quarter 2009) and include 180 million euros in restructuring costs (20 million euros in the second quarter 2009).
Thus, pre-tax income this quarter came to 699 million euros compared to 138 million euros in losses during the same period a year earlier.
Commenting on these results, Chief Executive Officer, Baudouin Prot, stated:
“Again this quarter, despite an unfavourable market environment, BNP Paribas confirmed the effectiveness of its diversified, integrated and client-centric business model.
I would like to thank the Group’s employees for these results that they achieved through their amazing dedication, all the while carrying out Fortis’ integration quickly and capably.
All the operating divisions pursued their business development plans, thereby contributing, with the reduced cost of risk, to mighty profit generating capacity. This has enabled the Group to maintain high solvency levels and to actively finance the economy.”
Discussion about this post