On 3 August 2009, the Board of Directors of BNP Paribas, in a meeting chaired by Michel Pébereau, examined the Group's second quarter results as well as the first half financial statements.
Strong profit generating capacity
In an environment characterised by a continued deterioration in the economy and a gradual normalisation of the markets, BNP Paribas Group again had a solid performance, generating a net profit (group share) of 1,604 million euros, up 6.6% compared to the second quarter 2008 and up 3.0% compared to the first quarter 2009.
This strong profit generation capacity is due to the very good operating performance of all the divisions despite a high cost of risk, in line with its level in the first quarter of the year.
The consolidated Group posted revenues of 9,993 million euros, up 32.9% compared to the second quarter 2008. The rise in operating expenses, limited to 19.9%, yielded gross operating income of 4,175 million euros, up 56.7% compared to the second quarter 2008. Despite the significant rise in the cost of risk, the decline in operating income was limited to 8.6% and pre-tax income, which totalled 2,170 million euros, was up 4.6% compared to the second quarter 2008.
In the first half of 2009, the Group's revenues were 19,470 million euros (up 30.6% compared to the first half of 2008), and the net income group share came to 3,162 million euros (down 9.3% compared to the first half of 2008), or a half year net earnings per ordinary share of 2.9 euros. The annualised return on equity was 11.8% compared to 15.8% in the first half of 2008.
Very good operating performance
Despite a still challenging economy, all the Group's divisions continued to expand their businesses and made a positive contribution to the Group's performance. BNP Paribas thereby demonstrated the robustness of its integrated banking model in a challenging environment.
Corporate and Investment Banking (CIB)
The strong customer business combined with the successful repositioning of CIB, launched as early as the fourth quarter 2008, helped the division again deliver excellent performances this quarter.
The division's revenues, at 3,351 million euros, were up sharply compared to the second quarter 2008 (+80.9%) and down only 9.3% compared to the record level in the first quarter 2009.
For capital markets, client business, in particular in flow products, remained very strong in markets in the process of being normalised and came along with a further reduction in market risks (average quarterly VaR: 52 million euros compared to 69 million euros in the first quarter 2009).
Revenues from the Fixed Income business unit, 1,931 million euros, were again extremely strong this quarter. They were driven by investor demand, which remains very active, and by a favourable market environment due to a tightening of credit spreads and still wide bid/offer spreads, although reduced compared to their first quarter levels. Again this quarter, CIB Fixed Income ranked number 1 in euro-denominated bond issues.
Having adjusted its exposures to a new market environment in the first quarter of the year, the Equity and Advisory business was back to normal this quarter. Revenues reached 710 million euros, whereas they were barely positive in the first quarter of the year. They were driven by sustained demand from institutionals and a pick up in hedge fund activity. In addition to strong demand for flow products, clients are again gradually more interested in simple and easy to hedge structured products. In the very active equity origination market, BNP Paribas received bookrunner mandates in connection with a number of issues.
Revenues from the Financing Businesses, which totalled 710 million euros, were stable compared to the second quarter 2008 in a context of a strict credit selection policy in origination and better client and country risk profile. Business was good, especially in acquisition and commodities finance. As part of an effort to achieve more efficient capital management, the equity allocated to the business unit was down 11.2% compared to the second quarter 2008.
At 1,467 million euros, the division's operating expenses were up 16.8% compared to a low base in the second quarter 2008, in line with the revenue level at that time. At constant scope and exchange rates and excluding variable compensations, they were down 1.5%, in accordance with cost-cutting programmes introduced at the beginning of 2009, more than 50% of which have already been achieved. Compared to the first quarter 2009, they were down 17.1%. These trends again testify to the flexible nature of CIB's operating expenses.
The cost of risk was 744 million euros, up 658 million euros compared to the very low base in the second quarter 2008. Compared to the first quarter 2009, the rise was less (+47 million euros). At 297 million euros, the cost of risk in capital markets was significantly below the levels it had reached during the financial crisis in 2008. It rose by only 20 million euros compared to the first quarter of the year due to the ongoing normalisation of the markets. The cost of risk of the financing businesses, affected by the slowdown in the economy, was substantial (447 million euros), with notably provisions of respectively 109 million euros on LBOs and 103 million euros in the Gulf countries. Compared to the first quarter 2009, it was up only 27 million euros.
Pre-tax income, at 1,145 million euros compared to 523 million euros in the second quarter 2008 and 1,229 million euros in the first quarter 2009, was very strong. This very good performance was accompanied by a 10.5% reduction in allocated equity compared to the first quarter 2009, notably due to the reduction of market related risks.
In the first half of 2009, CIB’s revenues reached a record 7,047 million euros compared to 3,163 million euros in the first half 2008. Pre-tax income totalled 2,374 million euros compared to 841 million euros in the first half 2008.
The division's very solid performance illustrates its superior franchise and its remarkable ability to adapt to a new market environment. It drew on very strong client demand without taking any additional risks as evidenced by a further fall in the VaR, and on efficient capital management.
BNP Paribas
Date: 04.08.2009
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