BNP Paribas shares fall after downgrade to profit target

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BNP Paribas shares fell almost 10 per cent on Thursday, the biggest drop on a bruising morning for several European lenders, after pushing back a key profitability target.

The eurozone’s largest bank said that it would now reach a 12 per cent return on tangible equity in 2026 rather than 2025, as it pinned some of the blame on the European Central Bank’s decision to stop paying interest on the minimum reserves that commercial banks park with it.

The move to push back the target came alongside a more cautious outlook on the European economy. It was enough to drag down shares of other French lenders, with Société Générale and Crédit Agricole sliding 3 per cent and 2 per cent respectively.

Shares in ING, meanwhile, dropped more than 8 per cent after the biggest Dutch bank by assets reported lower net interest income than analysts had forecast.

“A downgrade to 2025 targets is disappointing,” Anke Reingen, an analyst at RBC Capital Markets, said of BNP.

Investors are braced for a tougher year for European banks as the windfall from higher interest rates recedes. ING warned that its total income would be lower than last year’s in anticipation of central banks cutting interest rates.

While ECB president Christine Lagarde has pushed back against expectations that monetary policy could be eased as early as next month, economists believe rates have peaked.

Jean-Laurent Bonnafé, BNP’s chief executive, told reporters that there was “a stronger-than-expected slowdown in Europe”.

BNP has long been seen as one of Europe’s most resilient and diversified lenders, but the gloomier outlook came as the bank reported a 50 per cent drop in fourth-quarter earnings to just over €1bn, missing analyst expectations of €1.7bn.

The results were marred by a €645mn provision set aside for losses tied to what BNP described as “risk on financial instruments”, some of which relate to a dispute with customers who alleged they were misled into taking out risky mortgages in Swiss francs.

Bonnafé said BNP was the European bank with the biggest reserves, meaning it was disproportionally hit by the ECB’s move to stop paying banks for the funds they had deposited.

The bank also said it would be hit by new banking levies in Belgium, where it owns Fortis. In addition, the French lender flagged a drop in returns in its real estate arm and a restructuring of its personal finance division, saying this would hurt profitability in the short term.

Despite the economic uncertainty in Europe, Bonnafé insisted that the bank would continue to grow in the region. “We’ll be compensating this relatively weak economic backdrop with market share gains.”

BNP still has more than half of a €7.6bn windfall from the disposal of Bank of the West, the US retail bank it sold to Bank of Montreal in 2021.

The bank confirmed it would distribute 60 per cent of its earnings in dividends for the second consecutive year, mostly in cash and through a €1bn share buyback. For the whole of 2023, the bank reported record profits and revenues.