BNP Paribas bolsters defences against European slowdown

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By Lionel Laurent and Matthias Blamont | November 7, 2012 7:42 PM EST

BNP Paribas , France's biggest bank, doubled its third-quarter profit thanks to a rebound in debt product sales and lifted its capital levels to a new high as it prepares to weather a deepening European economic slowdown.

The bank said it had completed plans to slim down its balance sheet and lift capital ratios, effectively turning the page on the turbulent summer of 2011 that saw French banks scramble to sell assets after investors dumped their shares.

Banks across Europe are slashing costs and selling assets to cope with tougher regulations aimed at preventing a repeat of the 2008 financial crisis, as well as a deteriorating economy as countries implement austerity drives to cut their debts.

BNP's focus is now on broader cost cuts, with its domestic retail unit seen as ripe for change, BNP's chief executive told Reuters Insider television on Wednesday.

"We have a very good, strict risk control and we are also working quite efficiently on the cost base," Jean-Laurent Bonnafe said. Although core markets like France, Belgium and Italy would perform "reasonably well" in coming quarters, its retail model in France was being adapted, he said.

BNP's third-quarter net profit more than doubled to 1.32 billion euros ($1.7 billion) from 541 million in the same period a year ago. The mean of 10 analyst estimates was 1.18 billion, according to a Reuters poll.

Revenue fell 3.4 percent to 9.7 billion euros. The mean estimate in the poll was 9.3 billion.

"Earnings better all across the board ... Beats consensus in every business," said Cheuvreux analyst Pascal Decque.

BNP shares jumped 4.4 percent to 40.82 euros in early trade, the second-biggest rise by a European blue-chip stock <.FTEU3>.

Like rivals across the industry, BNP benefited from central bankers' moves to spur growth and promises to keep the euro zone from breaking apart, which buoyed trading in the third quarter.

The bank has also lifted its balance-sheet strength over the past year by cutting staff, costs and its exposure to peripheral euro zone economies like Greece.

Its closely-watched Basel III capital ratio was 9.5 percent on September 30, a fresh high that puts it ahead of rivals like UBS and Bank of America sooner than expected.

BNP's balance-sheet strength bodes well for the bank's dividend policy and for rival Societe Generale's results, due on Thursday, Nomura analyst Jon Peace said.

However, with even core European economies like France struggling to lift growth and bring unemployment down, BNP's traditional retail-banking "cash cow" is weakening. French retail revenue fell 2 percent, testament to bankers' views that domestic branch networks are ripe for cutbacks.

INVESTMENT-BANK REBOUND

BNP's corporate and investment bank posted the biggest revenue jump of its divisions, up 33 percent year-on-year.

Fixed-income revenue grew 38 percent, compared with a 67 percent rise for Germany's Deutsche Bank , 20 percent at UBS and around 33 percent for Stateside rivals JPMorgan Chase and Morgan Stanley .

BNP has made fixed-income a key plank of its post-2008 strategy as traditional lending gives way to borrowing via the bond market, a transaction type that eases the pain of Basel III rules' tougher capital requirements on traditional lending.

Although CEO Bonnafe is some months away from unveiling his vision for the group, almost a year after he took the reins, he has said the bank will grow market share in Europe and told Reuters Insider he wanted to develop investment-bank operations in the United States, ready for an expected economic pick-up.

Playing down the threat of planned banking reform in France, which the government has said will curb banks' risky trading activities, Bonnafe said there would be no significant cost impact and that France would support its way of doing business.

In an environment where UBS is cutting 10,000 jobs and exiting fixed-income, however, he warned that trader compensation would remain "reasonable", without saying more.

($1 = 0.7812 euros)

(Editing by James Regan and Mark Potter)

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