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<a href="https://www.smartkarma.com/entities/bnp-paribas" target="_blank" data-smartkarma-citation="entities:525:1" rel="noopener">BNP Paribas (BNP FP)</a> is frequently confused with simply being a French retail or commercial bank with an investment banking business. However, the institution’s non-bank financial services are significant. In fact, BNP’s non-banking Personal Finance division generated higher pre-provision profits and higher credit costs than the other operating divisions of the firm. High margins offer protection, however, in a prolonged or series of economic downturns, the Personal Finance operations could generate meaningful non-performing loans.Nonetheless, BNP’s revenues grew by 0.6% year-on-year in the first nine-months due, in part, to 32% growth in Global Markets, which incorporate the investment banking activities of the firm. Global Markets generated more revenues per unit of risk in 2020 than BNP’s French retail or Corporate Banking activities. It outperformed due to high client activity and fortuitous market volatility. Concurrently, legislated and bank provided Covid-19 relief, juxtaposed with regulatory forbearance, kept credit costs low. This helped BNP have a good health crisis.Despite the potential for outsized losses in the capital markets operations, we believe that the real risk to BNP’s revenues is that central banks are eventually successful at stamping out market volatility while economic activity remains subdued. This could lead to lower capital market, retail and non-bank financial service revenues while delayed credit costs are recognized. BNP would not be alone in suffering from such an outcome, but it may not achieve results like those seen so far in 2020. BNP’s future results are sensitive to Personal Finance and Global Market activities.  In this, the first of several linked insights on European banks that offer interesting credit investing opportunities across the credit continuum, we assess the main drivers of BNPs performance year-to-date. Regulatory forbearance has played a major role in keeping credit costs low. With a new strain of the virus impacting Europe and the original virus reasserting itself across jurisdictions were BNP operates, we anticipate an increase in the rate of delinquency amongst COVID-19 relief borrowers. We assess and identify investing opportunities within follow-up notes on BNP.

BNP Paribas (BNP FP) is frequently confused with simply being a French retail or commercial bank with an investment banking business. However, the institution’s non-bank financial services are significant. In fact, BNP’s non-banking Personal Finance division generated higher pre-provision profits and higher credit costs than the other operating divisions of the firm. High margins offer protection, however, in a prolonged or series of economic downturns, the Personal Finance operations could generate meaningful non-performing loans.Nonetheless, BNP’s revenues grew by 0.6% year-on-year in the first nine-months due, in part, to 32% growth in Global Markets, which incorporate the investment banking activities of the firm. Global Markets generated more revenues per unit of risk in 2020 than BNP’s French retail or Corporate Banking activities. It outperformed due to high client activity and fortuitous market volatility. Concurrently, legislated and bank provided Covid-19 relief, juxtaposed with regulatory forbearance, kept credit costs low. This helped BNP have a good health crisis.Despite the potential for outsized losses in the capital markets operations, we believe that the real risk to BNP’s revenues is that central banks are eventually successful at stamping out market volatility while economic activity remains subdued. This could lead to lower capital market, retail and non-bank financial service revenues while delayed credit costs are recognized. BNP would not be alone in suffering from such an outcome, but it may not achieve results like those seen so far in 2020. BNP’s future results are sensitive to Personal Finance and Global Market activities.  In this, the first of several linked insights on European banks that offer interesting credit investing opportunities across the credit continuum, we assess the main drivers of BNPs performance year-to-date. Regulatory forbearance has played a major role in keeping credit costs low. With a new strain of the virus impacting Europe and the original virus reasserting itself across jurisdictions were BNP operates, we anticipate an increase in the rate of delinquency amongst COVID-19 relief borrowers. We assess and identify investing opportunities within follow-up notes on BNP.

BNP Paribas: Personal Finance and Global Markets Sensitivity