BNP Takes Credit Suisse’s Spot at the Stock Trading Table

(Bloomberg Opinion) -- BNP Paribas SA has long sought a spot at the top table of global stock-trading banks. Its push is finally starting to pay off.

The French bank has overtaken Swiss rival Credit Suisse Group AG with consistently better equities revenue over the past year, and it's hot on the heels of Britain's Barclays Plc, which has also been ploughing resources into this business.

BNP's efforts helped lift revenue across stock and bond trading by 53% in the first quarter versus the same period last year — far ahead of expectations and beating all rivals for growth. Combined with a strong performance in its other businesses, the bank reported group pretax profits of 3.3 billion euros ($3.5 billion), which were 50% ahead of forecasts, according to Bloomberg data.

Profits benefited from the revenue growth in trading but also from a lack of credit-related losses across traditional lending. BNP has minimal exposure to Russia-related risks, and its move away from credit cards — and toward corporate lending, wealthier clients and mortgages — has helped keep risk low in its commercial and personal banking arm.

BNP's stock and bond trading revenue was driven by the unusual conditions in the first quarter that boosted many investment banks' profits. A strong period of increased risk-taking and new investment right at the start of the year was followed by high volatility, uncertainty and investors searching for protection in March after Russia's invasion of Ukraine and a string of high inflation readings.

In fixed income, currencies and commodities, BNP's year-on-year revenue growth in dollar terms was in line with Barclays's but better than all the others, including Goldman Sachs Group Inc. Like rivals, it was helped by the jump in bond yields and interest-rate expectations among investors, as well as volatility in currencies and commodities.

BNP's bond, currency and commodity trading is linked more closely with the borrowing and hedging needs of ordinary companies than with the speculative activity of investment funds, which drives activity for many of its rivals. Despite this difference in customer base, this quarter will have been as unusually strong for BNP as for its main competitors.

On the equities side, a good part of BNP's growth has come from acquisitions. Its prime brokerage, which involves trading with and lending to hedge funds, has grown substantially since its deal to take over Deutsche Bank AG's operation in 2019. The last remaining clients were transferred to BNP in January this year. Last year, the bank also bought the 50% of shares it did not own in Exane, an equities broker that it had partnered with for 17 years.

BNP has said how much revenue Exane added to equities — 80 million euros out of its 424 million-euro year-on-year growth — but it didn't detail how much its new hedge fund clients bought in. Even if these two additions were only worth half of BNP's revenue gains, which is probably a conservative estimate for the prime brokerage, its underlying growth in equities would still have outpaced rivals during this standout quarter for markets.

What matters, though, is that the Exane and hedge-fund clients have provided a step up in scale that won't disappear and that BNP can build on.
It probably also got some hedge-fund clients from Credit Suisse's decision to shut its own prime brokerage after suffering losses from the collapse of Archegos Capital Management.

The French bank's shares trade at a higher multiple of forecast book value than European peers Barclays, Credit Suisse and Deutsche Bank. On this evidence, BNP's valuation deserves to be higher still.

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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. He previously worked for the Wall Street Journal and the Financial Times.