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French bank BNP Paribas hits capital goal early

Battling to reassure investors worried about its exposure to the euro zone debt crisis

Reuters  |  Paris 

BNP Paribas , France's biggest listed bank, has hit a target to strengthen its capital base six months early as it battles to reassure investors worried about its exposure to the euro zone sovereign debt crisis.

The news, which steals a march on domestic rival SocGen , came as BNP posted a smaller-than-expected fall in second-quarter profit, helped by tight cost control, asset sales and lower-than-feared provisions for losses on loans.

European banks, including Deutsche Bank and UBS as well as SocGen, have reported dismal second-quarter results, hit by the euro zone's debt problems and weak economy.

Many have also been selling assets, slashing jobs and cutting dividends to bolster their balance sheets and meet tougher regulations aimed at preventing a repeat of the 2008 financial markets crisis.

BNP, which has more than half of its credit-risk exposure in the euro zone, is ahead in the race with local rival SocGen, revealing on Thursday it had hit a Tier 1 capital ratio of 8.9 percent under tougher Basel III rules at end-June - six months ahead of schedule. It said its deleveraging was 90 percent done.

SocGen, meanwhile, is eyeing a Basel III ratio of at least 9 percent only by end-2013. Its deleveraging is 60 percent done.

"We are very confident for the second part of the year," BNP Chief Executive Jean-Laurent Bonnafe told Reuters Insider television. "This quite positive positioning will allow the group to concentrate on mid-term issues."

Markets including France, Italy and Belgium are expected to show "resilience" in the second half, Bonnafe added. BNP has benefited from relatively low household debt levels in these countries, despite the over-arching sovereign turmoil that is threatening to unravel decades of empire-building.

The CEO also pointed to European Central Bank head Mario Draghi's commitment to revive confidence if needed.

At 0725 GMT, BNP shares were up 2.3 percent at 31.37 euros, within a flat European blue-chip index. The stock, which often trades as a proxy for the euro zone, has lagged the STOXX Europe 600 bank index by 9 percent over the past year.


BNP saw second-quarter net income fall 13.2 percent to 1.85 billion euros, beating the average of analyst estimates of 1.74 billion in a Reuters poll.

Revenue dropped 8 percent to 10.10 billion euros, broadly in line with the poll average of 10.13 billion.

"The results are better than expected across the board," said Kepler Capital Markets analyst Benoit Petrarque.

As at rivals, BNP's corporate and investment bank bore the scars of cost cuts and volatile markets, with pretax profits sinking 40 percent and revenue down by a quarter. Retail banking, a division that has proven a lucrative counterweight to market turmoil, saw pretax earnings slip by a milder 2 percent.

BNP has sold loan portfolios to banks such as Wells Fargo as well as a chunk of its property subsidiary Klepierre as part of its fight to improve financial firepower.

Asked whether BNP was embroiled in the Libor rate-fixing scandal, Bonnafe said the bank was "absolutely not" involved. He said regulators would have to change the way Libor was calculated.

(Editing by James Regan and Mark Potter)

First Published: Thu, August 02 2012. 13:14 IST