Morningstar | BNP Paribas 1Q 2019: Solid Beat With Investment Banking Revenue Defying Dire Expectations
No-moat BNP Paribas reported attributable net income of EUR 1.9 billion for the first quarter of 2019, 22% higher than the EUR 1.6 billion it reported for the first quarter of 2018. Consensus expectations were for attributable net income of EUR 1.8 billion. The results are somewhat distorted by nonrecurring items; profit before tax, excluding nonrecurring items, came out at EUR 1.9 billion, unchanged compared with the prior year but 14% ahead of consensus. Most striking to us was the good revenue growth of 3% year on year to EUR 11.1 billion, solidly beating consensus expectations of EUR 10.7 billion. We maintain our no-moat rating and EUR 50 fair value estimate.In our previous note we expressed our reservations around BNP's ability to increase its revenue to the extent required to meet its 2020 targets. The robust revenue growth for the first quarter therefore came as a welcome surprise. The corporate and investment banking division, which has been the culprit dragging down group revenue and profitability for most of the recent past, was the surprise with revenue of EUR 3 billion comfortably beating consensus expectations of revenue of EUR 2.8 billion for the first quarter of 2019. Pretax profit for corporate and investment banking came out at EUR 513 million, meaningfully ahead of the EUR 374 million that consensus had penciled in. Fixed-income currencies and commodities trading was the main surprise, increasing its revenue by 32% as its rates and currencies activities in emerging markets in particularly rebounded strongly. Equity trading, while down by 30% compared with the first quarter of 2018, rebounded strongly from the disastrous final quarter of 2018.
One should, however, guard against getting carried away with the rebound in performance from BNP. Banking management teams in general never tire of reminding us about the volatile nature of trading revenue streams when trading revenue disappoints. This holds true when trading revenue surprises on the upside as well and a quarter is too short to infer major trends.
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