In an effort to reassure investors and close the gap with certain European competitors, French bank BNP Paribas increased its core capital buffer, or CET1, to 13% by 2027 on Thursday from 12.5% just two months prior.
The largest lender by assets in the euro zone said in an unplanned statement that the higher prediction is due to improved group profitability, moderate annual growth of roughly 2% in risk-weighted assets, and quicker sales of non-strategic companies.
At 1003 GMT, BNP shares were up almost 5%, but the stock still trails its European competitors.
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Market Performance and Investor Pressure
The bank’s shares have increased 19% this year, compared to a 62% gain in the STOXX Europe 600 Banks index and a more than twofold increase in the value of Societe Generale’s stock, putting pressure on Chief Executive Jean-Laurent Bonnafe to take action.
BNP was headed for its largest one-day increase since March 2022.
Citi stated that the goal was to “draw a line under the capital debate.” At the same time, Jefferies saw the new objective as “a significant moment of clarity for investor perceptions” and “a statement of strength.”
Citi stated that the goal was to “draw a line under the capital debate,” while Jefferies saw the new objective as “a significant turning point for investor views” and “a statement of strength.”
Comparison With European Banking Peers
The change, according to analysts, pushed BNP closer to its peers: SocGen is aiming for roughly 13% by 2026, while Deutsche Bank is aiming for a core capital ratio of 13.5% to 14% through 2028.
BNP stated that it will determine how much of the capital exceeding the new objective would be given back to shareholders at the end of each year.
Additionally, the European Central Bank has given the group permission to move on with a 1.15 billion euro ($1.32 billion) share repurchase program, which it hopes to start by the end of November, according to BNP.
Strategic Plans and Financial Targets
The bank reaffirmed its goal of a 13% return on tangible equity by 2028.
It suffered several setbacks in October, including a third-quarter profit miss due to an increase in bad loans, a U.S. lawsuit about Sudan, and concerns about U.S. regional banking exposure to two auto bankruptcies that spread to European and Asian banks.
“BNP is addressing market-related issues by raising its CET 1 target to peer level, modifying its distribution strategy for distributing potentially more capital, redefining the cost targets to a cost ratio of income, and trying to send a message of trust in capital by moving earlier with its FY2025 stock buyback,” RBC analysts stated in an investor note.
Due to investors’ doubts about the lender’s potential to increase its profitability in comparison to competitors, BNP shares have seen less than half the gains that the average European bank has had over the last three years.
