By Mathieu Rosemain
PARIS (Reuters) -BNP Paribas reported a surprise drop in fourth-quarter income and pushed back a key profitability target on Thursday, triggering a more than 8% fall in the French bank's shares.
Revenue at its investment bank, which CEO Jean-Laurent Bonnafe has been expanding, fell from a year earlier as did sales at its consumer and commercial real estate businesses.
And Bonnafe said the outlook was not good for the bank as the euro zone economy was "in the process of slowing down".
Euro zone banks have been reporting a surge in profits and payouts to shareholders in recent quarters, thanks to rising interest rates. However, the horizon is clouded by economic uncertainty and expectations that interest rates will fall.
"The ECB isn't cutting its short-term rates, it's waiting for inflation to fall in line. Obviously it's taking a little longer than expected. From that point of view, 2024 won't be very favourable for us," Bonnafe added at a news conference.
Group net income dropped by 50% year on year on a reported basis to 1.07 billion euros ($1.16 billion), short of the 1.74 billion euro average of analyst estimates compiled by BNPP.
JP Morgan analysts called the results "disappointing" despite more shareholder payouts. The "top line was weaker in all divisions except Corporate Banking, but the miss mainly came from CIB (corporate investment banking)," they said in a note.
BNPP said it would increase its full-year cash dividend by 18% to 4.60 euros per share and spend a further 1.05 billion euros buying back shares.
The euro zone's biggest bank by assets said it has already used 3 billion euros of excess capital from more than 7 billion euros generated after selling its U.S. retail operations last year, leaving it with about 4.6 billion euros to redeploy.
By 1025 GMT, BNPP shares were down 8.4% at 57.32 euros per share, in what would be their biggest one-day fall since March.
Shares in Dutch bank ING also fell sharply on Thursday after it forecast lower total income for 2024.
BNPP's miss was in part due to it setting aside 645 million euros to cover losses tied to "risk on financial instruments".
Half of that sum relates to a long-running case involving Swiss franc mortgages in Poland, which turned out to be costly for borrowers when the currency soared against the zloty.
Europe's top court ruled last year in favour of the mortgage holders, empowering them to reclaim some of the payments.
BNPP's fourth-quarter group sales were up 0.1% at 10.9 billion euros, against a 11.4 billion euro average estimate.
TRADING TUMBLE
BNPP also reported a 2.6% fourth-quarter decline in revenue at its investment bank, dragged down by a 32% slide in revenue from trading in fixed income, currencies and commodities (FICC).
The bank's insurance and wealth management IPS division performed worse than expected, with sales down nearly 13%.
It also reduced its 2025 target for return on tangible equity (ROTE) - a measure of profitability - saying it would not hit its 12% target until 2026 because of higher regulatory reserve requirements and pressure to increase deposit rates.
The underperformance of BNPP's real estate and consumer finance businesses is also hampering earnings. It expects both to return to their previous profitability levels in 2026.
BNPP now sees ROTE in 2025 between 11.5% and 12%, down from about 12%. It also cut its average annual net income growth target over the 2022 to 2025 period to about 8% from more than 9%, linking that to minimum reserve requirements from the European Central Bank and a Belgian bank levy.
The bank confirmed other targets, including a payout dividend ratio of 60% and Common Equity Tier 1 (CET1) capital of 12% in 2025.
($1 = 0.9256 euros)