The Board of Directors of BNP Paribas met on 30 July 2014. The meeting was chaired by Baudouin Prot and the Board examined the Group’s results for the second quarter 2014 and endorsed the interim financial statements for the first half of the year.
VERY SIGNIFICANT IMPACT OF ONE-OFF ITEMS, VERY GOOD PERFORMANCE WITH €1.9BN IN NET INCOME EXCLUDING THESE ITEMS
The Group’s results this quarter include the impact of the comprehensive settlement with the U.S. authorities (1) regarding the review of certain USD transactions, which includes among other things the payment by BNP Paribas of a total amount of 8.97 billion U.S. dollars (6.6 billion euros) in penalties. Given the amount already provisioned, the Group thus booked this quarter a one-off charge for a total amount of 5,950 million euros, of which 5,750 million euros in penalties and 200 million euros corresponding to the future costs of the remediation plan announced at the time of the comprehensive settlement.
Excluding these items, the Group’s performance was very good this quarter.
The Group’s revenues totalled 9,568 million euros, down 2.3% compared to the second quarter 2013. It included this quarter two exceptional items for a net total of -353 million euros:
-166 million euros as a result of the introduction of Funding Valuation Adjustment (FVA) at Fixed Income and -187 million euros in Own Credit Adjustment (OCA) and own credit risk included in derivatives (DVA). The one-off revenue items at the same period last year totalled +150 million euros. Excluding these exceptional items and at constant scope and exchange rates, revenues rose by 4.8% compared to the same quarter last year.
Revenues from the operating divisions increased 4.0% (2) compared to the second quarter 2013: they were stable (3) in Retail Banking, posted good growth in Investment Solutions [+5.0% (3)], and were up sharply in Corporate and Investment Banking [+14.6% (2)].
Operating expenses, at 6,517 million euros, were up by 4.3%. They included this quarter the one-off 198 million euro impact of Simple & Efficient transformation costs (74 million euros in the second quarter 2013). Excluding transformation costs and at constant scope and exchange rates, they were up 4.1%.
The operating expenses of the operating divisions were up 3.9% (3), in line in particular with business growth at Investment Solutions and CIB, and include the effects of Simple & Efficient. They were up 0.8% (3) at Retail Banking, 3.7% (3) at Investment Solutions and 11.9% (3) at CIB.
Gross operating income declined by 13.8% over the period to 3,051 million euros. Excluding exceptional items and at constant scope and exchange rates, it was up by 6.1% and 4.3% for the operating divisions.
The Group’s cost of risk was down 18.1% this quarter at 855 million euros (53 basis points of outstanding customer loans), overall stable since the beginning of 2013, reflecting the Group’s good risk control.
Given the impact of the comprehensive settlement with the U.S. authorities, pre-tax losses thus came to -3,600 million euros (pre-tax income of 2,713 million euros in the second quarter 2013). Excluding exceptional items and at constant scope and exchange rates, pre-tax income was up 15.8% (+11.4% for the operating divisions).
Net losses attributable to equity holders thus came to -4,317 million euros (net income of 1,765 million euros in the second quarter 2013). Excluding the impact of the one-off items, net income attributable to equity holders totalled 1,924 million euros, up 23.2% compared to the same period last year.
Excluding the net impact of the costs related to the comprehensive settlement with the U.S. authorities, annualised return on equity (4) was 8.2% and net earnings per share this quarter came to €2.51.
The Group’s balance sheet is rock-solid. The Group’s solvency was in line with the objectives of the 2014-2016 plan with a fully loaded Basel 3 common equity Tier 1 ratio (5) at 10.0% and a fully loaded Basel 3 leverage ratio (5) at 3.5% (6) . The Group’s immediately available liquidity reserve was 244 billion euros (247 billion euros at the end of 2013), equivalent to over one year of room to manoeuvre in terms of wholesale funding.
The Group is implementing major changes to its internal control system.
In order to guarantee their independence and their own separate funding, the supervision and control functions organisation will be aligned with the model of the Risk function and the General Inspection with notably vertical integration of the Compliance and Legal functions.
A Group Supervisory and Control Committee chaired by the Chief Executive Officer will also be created with the mission to provide cohesion and coordination of supervision and control actions. A Group Conduct Committee, tasked with positioning and monitoring policies in certain sensitive business sectors and countries as well as the Group’s Code of Business Conduct, will also be set up.
Lastly, resources and procedures for compliance and supervision will be stepped up. All of these measures are on top of the remediation plan unveiled at the time of the comprehensive settlement with the U.S. authorities.
For the whole first half of the year, the Group’s results include the impact of a total of 5,950 million euros in one-off costs related to the comprehensive settlement with the U.S. authorities. Excluding the impact of all the one-off items, net income attributable to equity holders totalled 3,535 million euros.
Revenues were 19,481 million euros, down 1.4% compared to the first half of 2013. They include for the first half of this year -116 million euros in one-off items compared to +299 million euros in the first half of last year. Excluding exceptional items and at constant scope and exchange rates, they were up by 2.7% (+1.9% for the operating divisions).
Operating expenses rose by 1.4% to 12,899 million euros. This increase is 2.3% excluding exceptional items and at constant scope and exchange rates (+2.8% for the operating divisions).
Gross operating income totalled 6,582 million euros, down 6.5% compared to the first half of 2013, but up 3.4% excluding exceptional items and at constant scope and exchange rates (+0.3% for the operating divisions).
The cost of risk, which was 1,939 million euros, was down 0.8% compared to the first half of 2013.
Pre-tax losses totalled -1,053 million euros in the first half of this year (pre-tax income of 5,358 million euros in the first half of 2013). Excluding exceptional items and at constant scope and exchange rates, pre-tax income was up 6.0% compared to the same period last year.
BNP Paribas posted this quarter -2,649 million euros in net losses attributable to equity holders (net income of 3,350 million euros in the first half of 2013). Excluding the impact of one-off items, net income was 3,535 million euros, up 12.3% compared to the same period last year.
(1) Announced on 30 June 2014, see note 3.g in the first half 2014 consolidated financial statements
(2) At constant scope and exchange rates, excluding exceptional items
(3) At constant scope and exchange rates
(4) OCA/DVA non annualised and net income restated to exclude the costs related to the comprehensive settlement with the U.S. authorities
(5) Ratio taking into account all the CRD4 rules with no transitory provisions
(6) Including the forthcoming replacement of Tier 1 instruments that have become ineligible with equivalent eligible instruments
- Read the press release "BNP Paribas Group: Results as at 30 June 2014" (unavailable link)
- View the slides of the presentation (unavailable link)
- Consult the consolidated financial statements (unaudited) (unavailable link)
- View the Quarterly Series (unavailable link)