BNP Paribas (BNPP) experienced an unexpected decline in fourth-quarter income, leading to a delay in achieving a crucial profitability goal and causing the bank's shares to plummet by 8 per cent on Thursday, according to Reuters. The investment bank, under the expansion of CEO Jean-Laurent Bonnafe, saw a decrease in revenue compared to the previous year, as did the consumer and commercial real estate businesses. The group's net income for the fourth quarter fell by 50 per cent year on year to 1.07 billion euros ($1.16 billion), falling short of the €1.74 billion average predicted by 15 analysts. JP Morgan analysts labelled the results as "disappointing," despite increased shareholder payouts, noting that all divisions, except corporate banking, underperformed, with the primary shortfall coming from corporate investment banking (CIB). BNPP announced plans to raise its full-year cash dividend by 18 per cent to €4.60 per share and allocate an additional €1.05 billion for share buybacks. The largest bank in the euro zone by assets has already utilised €3 billion of the over €7 billion in excess capital generated from the sale of its U.S. retail operations last year, leaving approximately €4.6 billion available for future use. BNPP's shortfall partially stemmed from allocating €645 million to cover losses associated with "risk on financial instruments." By 0825 GMT, BNPP shares had dropped 7.9 per cent to €57.64 per share, marking their largest single-day decline since March. Half of the allocated sum is linked to an ongoing Swiss franc mortgage case in Poland, which became expensive for borrowers as the currency appreciated against the zloty. Last year, Europe's highest court ruled in favour of the mortgage holders, enabling them to recover some payments. Meanwhile, BNPP's group sales for the fourth quarter slightly increased by 0.1 per cent to €10.9 billion, falling short of the €11.4 billion average analyst prediction. BNPP disclosed a 2.6 per cent drop in fourth-quarter revenue at its investment bank, primarily due to a 32 per cent decrease in revenue from fixed income, currencies, and commodities (FICC) trading. The bank's IPS division, which handles insurance and wealth management, underperformed, with a nearly 13 per cent decline in sales. Additionally, BNPP lowered its 2025 return on tangible equity (ROTE) target, a profitability metric, stating it wouldn't reach its 12 per cent goal until 2026 due to increased regulatory reserve requirements and the need to raise deposit rates. BNPP has revised its 2025 ROTE forecast to between 11.5 per cent and 12 per cent, a decrease from the previous estimate of around 12%. The bank has also lowered its target for average annual net income growth from over 9 per cent to about 8 per cent for the 2022–2025 period, attributing this to the European Central Bank's minimum reserve requirements and a Belgian bank levy. However, BNPP has reaffirmed its other objectives, including a 60 per cent dividend payout ratio and a 12% Common Equity Tier 1 (CET1) capital in 2025.
