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BNP Paribas warned that the coronavirus could cut a fifth of its 2020 earnings, as it revealed a € 184m blow to its equity trading division after complex derivatives suffered in volatile markets.
The French bank said Tuesday that its net income could drop from 15% to 20% this year, and that Covid-19 caused a “drastic revision of the 2020 macroeconomic scenario.” The lender also allocated an additional € 500 million to cover possible credit losses.
“The health crisis has had a major impact on the macroeconomic outlook and has produced extreme shocks in the financial markets,” BNP said in a statement along with its quarterly earnings report. Last week, local rival Société Générale reported an unexpected loss in the first quarter after a similar weakness in its equity business.
BNP shares rose 3.6 percent in early Paris operations. Analysts had estimated a steep 34 percent drop in annual earnings. Still, along with most other European lenders, the stock has lost almost half its value this year.
“We believe investors should receive solid earnings, capital and prospects in the current environment,” said Jon Peace, analyst at Credit Suisse. BNP executives assume “a very gradual recovery from a 2020 recession after the end of the blockade measures, with a 2019 GDP that will not be reached before 2022.”
BNP said European regulators’ decision to lean on companies to restrict dividends contributed to “extreme and exceptional volatility [which] led to a dislocation ”in complex equity products linked to future shareholder payments.
The melee caused a € 184 million hit to the income of the stock trading and hedge fund services division, leading to a loss of € 87 million. The unit generated 488 million euros in revenue in the same quarter of the previous year.
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The strength in BNP’s fixed income, commodities and currencies trading arm helped offset the pain, with revenues rising to € 1.4 billion from € 1 billion in 2019. However, the global global markets unit still registered a loss of € 17 million compared to an expected profit of € 102m, Peace said.
Last week, SocGen pledged to reduce risk and simplify its investment bank’s trade arm after dividend brakes caused its stock derivatives unit to backfire.
In a sign of the disruption, BNP took € 502 million in provisions for possible loan defaults as a result of the coronavirus blockade and the economic repercussions. However, while the bank’s cost of risk will increase this year, BNP executives said they expect cost cuts, including reductions of tens of millions of euros in travel and entertainment due to the coronavirus, to compensate.
The measure is in line with the rest of the banking sector, with US banks. USA And Europeans willing to set aside more than $ 50 billion in charges to protect themselves against impaired loans, the most since the 2008-09 financial crisis, and an indication of the dire economic situation. damage caused by the virus.
The BNP group’s first-quarter net income fell 33 percent to 1.28 billion euros year-on-year, 18 percent above analyst expectations. Total revenue fell 2.3 percent to 10.9 billion euros. SocGen reported a loss of € 326 million last week.
