BNP Paribas Raises 2025 Targets, Announces 5 Billion Euro Share Buyback

BNP Paribas, the euro zone's biggest lender, on Tuesday raised its 2025 targets and announced a 5 billion-euro share buyback program after recording a record annual profit last year on the heels of the sale of its U.S. retail banking business.

However, the bank posted a lower-than-expected net profit in the fourth quarter, after a jump in the funds it set aside for bad loans and higher costs offset a boom in trading sales.

Under Chief Executive Jean-Laurent Bonnafe, BNP has been growing securities trading, in part taking advantage of rivals' retrenchment as Wall Street firms from Goldman Sachs to Morgan Stanley axe jobs amid a slump in dealmaking.

In the three months to end December, BNP Paribas' net income fell by 6.7% from a year earlier to 2.15 billion euros ($2.31 billion), missing the 2.37 billion-euro mean estimate of six analysts compiled by Refinitiv.

The main factor behind the drop was a 52% jump in the cost of risk - or money set aside for failing loans - from a year earlier, to 773 million euros.

Exceptional operating expenses on restructuring costs and IT reinforcement also weighed on earnings, the bank said.

The group cited higher inflation and rising interest rates to explain the hike in provisions for some of its less risky loans in 2022.

It said, however, that its cost of risk was still low, adding that its core tier one ratio - a measure of a bank's ability to withstand shocks - stood at 12.3% at the end of December.

"The highlight of today's results, more than the Q4 earnings performance, was on the distribution plans as well as updated targets for 2025, which we expect will support the shares," Jefferies analysts said in a note.

RAISED TARGETS

BNP's solvency ratio has notably benefited from the $16.3 billion sale of the group's U.S. retail business Bank of the West. The transaction, closed on Feb. 1, will fund the bulk of the share buyback, that will be carried out in two tranches.

The bank's more profitable trading business also performed well, with a 24% rise in global markets revenue in the fourth quarter, as market volatility boosted trading in commodity derivatives, rates, foreign exchange and emerging markets.

Recent central bank rate hikes are set to bolster earnings from loans, especially if the spectre of a recession on the continent recedes.

With the proceeds from the U.S. sale and expectations of more than 2 billion euros in added revenue from interest rate rises, the bank now sees average annual growth in net income of more than 9% between 2022 and 2025, up from a forecast of more than 7%.

It also expects a return on tangible equity (ROTE) of around 12%, compared to a previous target of more than 11%.

"We are setting ambitious financial targets and pursuing our technological advances," Chief Executive Jean-Laurent Bonnaf? said.

($1 = 0.9326 euros)

(Writing by Mathieu Rosemain; Editing by Ingrid Melander, Kirsten Donovan)