BNP Paribas aims to rebalance the way it funds its corporate and investment bank over the coming quarters, with bosses pushing plans to win more deposits from large companies while at the same time reducing the bank’s dependence on US money market funds to almost zero.
The French lender plans to finance its entire corporate loan book through deposits in the medium term, and has launched a major campaign to win over new corporate depositors – especially in the Middle East, Africa and Latin America, where the firm has traditionally lagged behind rivals.
It also hopes to reduce its dependence on US money market funds to almost zero. The bank has already slashed its reliance on the industry after some funds suddenly stopped lending to European banks just over a year ago – cutting its use from about US$65bn in July 2011 to US$9bn today.
“We don’t need any more funding from money market funds in the US,” CIB head Alain Papiasse told IFR. “We are of course ready to accept deposits from them, and we’re attractive because we have one of the best ratings in the banking industry. But we want our dependence to be close to zero.”
The shift towards corporate deposits comes as banks – especially European ones – seek to avoid the sudden funding droughts that have plagued the wholesale bank market in the past few years. Access to funding markets has at times been closed to even the strongest banks, and the cost of such facilities has soared.
But BNP Paribas will have its work cut out. Other European banks – not least Deutsche Bank, which late last year overtook BNP as the largest bank in the eurozone in terms of total assets – have said that they too aim to grab a larger slice of total corporate deposits as a way to stabilise funding.
Papiasse believes the investment bank’s presence in 45 countries will make its proposition to corporate clients more appealing. At group level, it has a presence in 80 countries. “There is competition, but the number of players with an effective global reach in this space is truly limited,” he said.
“You need to have a good international loans and cash management set-up, banking licences in many countries, access to local clearing, and a presence across the eurozone,” added the CIB head. “A lot of our competitors don’t have the critical presence. We do.”
The shift is the latest in a series of stabilisation efforts from the French bank since the summer of 2011, when many European banks lost access to funding markets. BNP Paribas lost about US$50bn of money market funding in six months, and between July and September its share price plunged 58%.
US plans
Efforts to regain market confidence were focused mainly on the US, where the bank slashed its CIB balance sheet and scaled back its dollar funding needs. The bank also decided to reduce the amount it lends to clients in dollars, a decision that pushed it down five places to ninth in global loan league tables, according to Thomson Reuters data.
But Papiasse told IFR that downsizing is now over. “Deleveraging is behind us in the US and elsewhere,” he said. “We will reach our target of a 9% Core Tier 1 ahead of our schedule and ahead of our competitors. Now we can look forward knowing what the balance sheet and funding look like. The group can decide exactly where it wants to focus.”
Few major changes are expected to its US business, despite a stabilisation in funding markets. Papiasse said he hoped to gain a 1% market share across its businesses there.
In the US, the bank has a strong debt capital markets franchise – it ranked 13th in terms of proceeds raised in the first nine months of the year, according to Thomson Reuters data. It has no plans to beef up its equities presence, where it is substantially weaker.
According to Papiasse, many smaller banks are likely to rein in their global ambitions as a result of the lacklustre revenues across trading and investment banking. He said he hoped that would create more opportunities for those that stayed, but remains sanguine about a big boost to returns.
“In a world that will be more deleveraged and [have] lower risk, returns in investment banking will not be what they were,” he added. “Shareholders are going to ask why banks remain in certain businesses. Many are still trying to be global when they cannot afford to be any more.”
BNP Paribas reports third-quarter earnings on November 7. In the first half of the year, profit at its corporate and investment banking business came in at €1.99bn, down 35% on a year earlier. Revenues dropped 17% to €5.35bn, while its cost-income ratio rose eight percentage points to 61.5%.
Nonetheless, BNP Paribas remains one of the most efficient investment banks in the industry. It is also one of only a handful to have remained profitable throughout the last year, although it made just €46m in profits in the fourth quarter, narrowly avoiding a loss.
