BNP Paribas: Credit Suisse Slightly Revalues ​​- 08/01/2022 at 15:43

(AOF) – Credit Suisse raised its price target from 72 euros to 74 euros and confirmed its Outperformance opinion on BNP Paribas following the announcement of quarterly results. The research office highlights that net income beat consensus by 18% thanks to solid revenues across all divisions, with the main gains achieved in retail banking, leasing, market activities and insurance.

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key points

– Bank created in 1822, reinforced in 1999 by the merger with Paribas, 1st in France and 7th worldwide;

– Net banking income of 46.26 billion euros generated by international financial services (34%), banking networks (35%) and investment banking (31%);

– More than 80% commitments in “rich” countries: France for 32%, Belgium and Luxembourg for 16%, Italy for 9%, other European countries for 19%, North America for 13%, Asia-Pacific for 6% ;

– Business model based on diversification of locations and businesses, synergies and cooperation between businesses, operational innovation and for customers;

– Capital held by the Belgian State (7.7%), the Grand Duchy of Luxembourg (1%) and the workers (4.4%), with a 13-member board of directors chaired by Jean Lamierre, with Jean-Laurent Bonnafé Managing Director;

– Financial strength – CET 1 ratio of 12.4%, return on equity of 13.4% and liquidity of €468 billion.

Challenges

– GTS 2025 plan for growth, technology and sustainability aimed at:

– Return on equity of 11%, 3.5% annual growth of NBI, self-financing of transformation and investments and distribution rate of 60%, including at least 50% in dividends:

-Best-rated innovation strategy in the industry and focused on digitization:

– internally: support for intrapreneurs (Lux Future Lab, People’sLab4Good, Bivwak),

– in the offer to customers: 4.4 million “digital” customers, leader in France in digital functionalities, world-leading platforms in government bonds, forex or swaps and in the five largest European neo-banks with Hello Bank!,

– partnerships: global Plug and Pay platform to accelerate start-ups;

– Environmental strategy aiming to become a world leader in sustainable finance (2nd worldwide in green bonds and 1st in Europe, 1st in Europe in financing renewable energy projects):

– carbon neutrality objective in 2050,

– by 2025, 350 billion euros mobilized in sustainable loans and bond issues and 300 billion euros in sustainable investments;

– alignment of the loan portfolio with the trajectory of the Paris agreement (end of coal financing in 2030 in Europe and implementation of the Pacta methodology),

– advances in green microfinance,

– €4 billion funding for biodiversity;

– For joint ventures with Stellantis’ financing subsidiary, operating in Germany, Austria and the UK.

Challenges

– Change in net book value, €78.7, compared to the stock exchange rate;

– Continuous control of management fees and risk cost;

– Russia-Ukraine War: very marginal impact –depreciation in the Ukrainian subsidiary- and interruption of services to Russian customers;

– Use of proceeds from the sale of the North American subsidiary BoW – € 14.4 billion divided between the share buyback program, investments in technologies and targeted acquisitions;

– After a dynamic 1st quarter, confirmation of goals for 2025;

– Share buyback programs and 2021 dividend of €3.67, ie 50% of profit.

The negative effects of rising interest rates

The rise in interest rates normally causes an increase in bank income through loans granted. In Europe, according to a survey conducted by S&P with 85 banking establishments, the sector expects an average increase of 18% in its net interest income. However, this new inflationary context also has undesirable effects, namely the increase in refinancing costs. It also comes with the fear of a new recession, which would then affect all the bank’s businesses, from loans to asset management, whose revenues are correlated with market valuations. Reassuring element: Eurozone banks are strong enough to face a deteriorating environment.

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