French bank BNP Paribas lowers targets after weak fourth quarter

By Inti Landauro and Matthieu Protard

PARIS (Reuters) - France's largest listed bank BNP Paribas lowered its profitability and revenue growth targets for 2020 after adverse financial markets hit revenues in the fourth quarter of 2018.

BNP Paribas was now expecting a return on equity of 9.5 percent in 2020, down from a prior target of above 10 percent. The bank also lowered its revenue growth target to 1.5 percent per year between 2016 and 2020, from a prior 2.5 percent target.

The bank downgraded its expectations after revenue fell 1.5 percent in 2018 to 42.52 billion euros ($48.5 billion).

In the fourth quarter, revenue fell short of market expectations, coming in at 10.16 billion euros, down from 10.53 billion a year earlier. Analysts surveyed by Infront Data forecast revenues at 10.33 billion euros.

Net profit was slightly above market expectations at 1.44 billion euros, compared with an expected 1.41 billion euros, and marking a marginal increase from fourth quarter net profit of 1.43 billion euros a year earlier.

BNP Paribas' revenues from global markets were crushed by the downturn of world markets during the fourth quarter and fell 40 percent compared to the same period a year ago, the bank said, adding that the unit had posted a pre-tax loss.

Large European banks such as BNP Paribas are struggling to find new profit sources after years of rock-bottom interest rates have limited the potential returns on retail banking, while the corporate and investment banking business is highly vulnerable to swings in financial markets.

Two of BNP Paribas' smaller local rivals - Societe Generale and Natixis - have released profit warnings in recent weeks because of losses on market operations.

Last week, Deutsche Bank also posted a bigger-than-expected loss in the fourth quarter at its investment banking division.

BNP Paribas attributed the dismal performance of its global markets division to customers' disaffection towards certain instruments as prices plummeted. Furthermore, a deficient hedging strategy on an equity derivative portfolio caused a 70 million euro loss for the bank.

As a result of the market slump in the fourth quarter, BNP Paribas has decided to speed up a program to streamline its corporate and investment banking arm.

The bank intends to exit "non-strategic, subscale or unprofitable segments" after it had already closed its proprietary trading desk and its commodities desk in the U.S. It will also cut costs by an additional 350 million euros this year and the next and accelerate automation.

The only bright spot for BNP Paribas during the fourth quarter was its International Financial Services arm, which lumps together its insurance, asset management, consumer lending and other businesses.

BNP Paribas proposed a 2018 dividend of 3.02 euros per share, stable from last year.

($1 = 0.8777 euros)

(Reporting by Inti Landauro and Matthieu Protard; Editing by Sudip Kar-Gupta)