By Maya Nikolaeva and Gwénaëlle Barzic
PARIS (Reuters) – When the COVID-19 disaster struck Europe, corporations turned to at least one financial institution greater than every other to rearrange emergency loans: BNP Paribas (PA:).
The French lender took benefit of inner restructurings at European rivals, at a time when U.S. banks have been preoccupied with rescues at house. It expanded its steadiness sheet by 23% to 2.7 trillion euros within the first quarter, extending multi-billion sums to the likes of vitality large BP (NYSE:) and automaker Daimler (OTC:).
By comparability, opponents comparable to Santander (MC:), Deutsche Financial institution (DE:) and Credit score Suisse (S:) barely expanded their steadiness sheets by 5%.
BNP, the euro zone’s largest lender, has lengthy had a objective of turning into Europe’s dominant funding financial institution and goals to make use of the lending platform constructed within the disaster to additional this ambition, in line with a number of bankers and a supply near BNP’s administration.
BNP declined to remark for this story forward of its outcomes on July 31.
“Can BNP benefit from the standard and resilience of its earnings to develop (European) market share? I believe the reply is, sure,” stated Francois Chaulet, managing director at Montsegur Finance, whose funds spend money on BNP.
Nonetheless capitalising on lending development to earn higher-margin enterprise from clients it has lent to, comparable to advising on fairness issuance or mergers and acquisitions, has been a tough nut to crack and nonetheless would not look straightforward.
Whereas the financial institution’s risk-weighted belongings grew by 5.5% between 2015 and 2019, and income rose 3.9%, its return on tangible fairness – a measure of profitability – has remained flat at round 10%.
TRAILING ON M&A
Within the first half of 2020, BNP has trailed Goldman Sachs (NYSE:), Deutsche Financial institution, Barclays (LON:) and Credit score Suisse by way of merger mandates, rating outdoors the highest 10 advisers, and got here in ninth on fairness offers, unchanged from a yr in the past.
“Simply because you’ve lent some huge cash doesn’t imply that you are able to do for a big European company shopper all the pieces that the shopper needs to do: it takes particular abilities, and cash shouldn’t be all the pieces,” stated a senior Paris-based funding banker at a international rival.
“American competitors could be very powerful … they (BNP) know they’ve the steadiness sheet, nevertheless it’s onerous.”
BNP’s company banking enterprise combines M&A, ECM exercise and syndicated loans, in addition to commerce finance and money administration. It accounts for greater than a 3rd of its company and institutional banking income, which additionally consists of markets and securities companies.
For now, upping its lending is permitting BNP to shed its picture as a French-only financial institution.
It was the only underwriter on a $10 billion credit score facility for Britain’s BP (L:) in early April – an uncommon transfer for such a big facility, significantly in a sector like vitality that’s beneath pressure. The mortgage was then syndicated to 20 banks.
“The leaders of BNP used to say: my first shopper is the French financial system,” stated an individual who used to work near the highest administration of the financial institution. “Extra just lately, they are saying my first shopper is the European financial system.”
Because it has pushed to courtroom extra worldwide purchasers, BNP – lengthy the go-to financial institution for the French institution – has performed hardball on some company rescues in its house market, in line with six banking and trade sources near the offers.
It imposed stiffer phrases on a 4-billion-euro state-backed mortgage for flagship provider Air France, for instance, extracting a much bigger assure from the French authorities following heated discussions with officers, the individuals stated.
“BNP Paribas was particularly troublesome,” one authorized supply who labored on that deal stated.
The French finance ministry declined to touch upon the method, whereas Air France was not instantly out there to remark.
The strategy partly mirrored prudent risk-management.
However two funding banking sources stated the tussle was additionally an indication of BNP’s want to make sure it had sufficient sources to pursue its worldwide development technique with out being sucked into native stress to bail out too many corporations.
“It’s extra about the place BNP needs to allocate capital,” stated one of many sources, who was concerned within the Air France bailout.
Nonetheless, BNP remains to be poised to lend vital sums at house, having stated this month it had acquired 17 billion euros in calls for from French corporations for state-backed loans – the next proportion than its standard market share for such lending.
Bankers at rival banks stated BNP may revenue, as a primary step, by choosing up mandates to assist corporations in France that acquired loans and wanted restructuring or capital injections.
Cementing that form of work may very well be key. As authorities assist programmes begin to be wound down, the danger of loans on its newly expanded books turning bitter may enhance.
“BNP’s steadiness sheet continues to swell,” analysts at Societe Generale (OTC:) wrote in June. “BNP is extra delicate than most to adjustments in credit score high quality”.
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