BNP ramps up capital ratio far ahead of target

Tim Wallace
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BNP PARIBAS announced surprisingly strong profits yesterday as spending cuts mitigated some of the damage caused by the sovereign debt crisis.

The French bank also revealed plans to cut down its sovereign debt exposures as it has been burned by losses on European government bonds.

Profits came in at €1.85bn (£1.45bn), down 13.2 per cent on the year, as revenues fell eight per cent to €10.1bn.

Revenues in the retail bank rose 0.5 per cent and 2.2 per cent in its savings arm – investment solutions – but the investment banking arm took the biggest hit, with revenues slumping 23.6 per cent on falling levels of market activity and declining asset values.

Some of those falls were mitigated by cuts in costs – operating expenses fell four per cent to €6.34bn, in part thanks to the firm shedding 1,400 jobs over the past year.

Meanwhile the bank raised its Basel III core tier one capital ratio to 8.9 per cent – just 0.1 percentage point short of the nine per cent target which it wants to hit by the start of 2013.

However that capital level did take a 40 basis point hit from the falling value of sovereign debt holdings.

Boss Jean-Laurent Bonnafe wants to cap exposures to the debt of any one government at roughly €10bn.

That would require some changes to the current position – BNP Paribas’s banking book includes €12.2bn of Belgian government debt exposures and €11.2bn of Italian, while exposure to French government debt stands at €9.5bn.