BNP Paribas: diversified model damps rates boost

Rising interest rates are fattening bank profits. After better than expected third-quarter results on Thursday, BNP Paribas finance director Lars Machenil extolled their benefits. It is a pity France’s largest lender has less to offer here than some peers.

The first problem is the slow pace of rate rises from the less hawkish European Central Bank. Last week it raised its benchmark rate by three quarters of a point to 1.5 per cent. That compares with the Fed increasing to 3.75-4 per cent on Wednesday and the Bank of England going up to 3 per cent on Thursday.

The euro is down some 16 per cent versus the dollar in a year and inflation rose in double digits in October. The ECB’s action therefore seems halfhearted

The rising ECB rate trajectory is doing something to boost BNP’s profits. Machenil sees it as adding an extra €2bn to his outlook for net interest income by 2025. Yet even that looks modest against probable NII of €23bn for 2022.

The reality is that BNP has less sensitivity to rising rates than some peers. Its diversified structure offers some downside earnings protection. But that also reduces retail exposure. A 40 per cent weighting to retail-related assets on its loan book is lower than equivalent Spanish and Italian banks.

On average, every quarter point rise in ECB rates lifts BNP’s earnings per share by around 2 per cent, according to Citi bank analysts. That is half the average for the sector and less than a third of CaixaBank’s sensitivity.

No surprise then that BNP’s share price, down over a fifth this year, has lagged behind the Euro Stoxx bank index by nine percentage points. Big winners have included CaixaBank and Banco BPM, whose shares have both had healthy double digit gains.

It is easy to forget that BNP shares have been a haven over the past three years among Europe’s depressed banks. Its investment bank came into its own during the pandemic. Now it is underemployed. But those traders and deal doers will be busy again if maladroit ECB policies rattle markets.

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