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By Maya Nikolaeva and Gwénaëlle Barzic
PARIS, July 20 (Reuters) - When the COVID-19 crisis struck
Europe, companies turned to one bank more than any other to
arrange emergency loans: BNP Paribas.
The French lender took advantage of internal restructurings
at European rivals, at a time when U.S. banks were preoccupied
with rescues at home. It expanded its balance sheet by 23% to
2.7 trillion euros in the first quarter, extending multi-billion
sums to the likes of energy giant BP and automaker Daimler.
By comparison, competitors such as Santander,
Deutsche Bank and Credit Suisse barely
expanded their balance sheets by 5%.
BNP, the euro zone's biggest lender, has long had a goal of
becoming Europe's dominant investment bank and aims to use the
lending platform built in the crisis to further this ambition,
according to several bankers and a source close to BNP's
management.
BNP declined to comment for this story ahead of its results
on July 31.
"Can BNP take advantage of the quality and resilience of its
profits to grow (European) market share? I think the answer is,
yes," said Francois Chaulet, managing director at Montsegur
Finance, whose funds invest in BNP.
However capitalising on lending growth to earn higher-margin
business from customers it has lent to, such as advising on
equity issuance or mergers and acquisitions, has been a hard nut
to crack and still doesn't look easy.
While the bank's risk-weighted assets grew by 5.5% between
2015 and 2019, and revenue rose 3.9%, its return on tangible
equity - a measure of profitability - has remained flat at
around 10%.
TRAILING ON M&A
In the first half of 2020, BNP has trailed Goldman Sachs,
Deutsche Bank, Barclays and Credit Suisse in terms of merger
mandates, ranking outside the top 10 advisers, and came in ninth
on equity deals, unchanged from a year ago.
"Just because you have lent a lot of money does not mean
that you can do for a large European corporate client everything
that the client wants to do: it takes specific skills, and money
is not everything," said a senior Paris-based investment banker
at a foreign rival.
"American competition is very tough ... they (BNP) know they
have the balance sheet, but it's hard."
BNP's corporate banking business combines M&A, ECM activity
and syndicated loans, as well as trade finance and cash
management. It accounts for more than a third of its corporate
and institutional banking revenue, which also includes markets
and securities services.
For now, upping its lending is allowing BNP to shed its
image as a French-only bank.
It was the sole underwriter on a $10 billion credit facility
for Britain's BP in early April - an unusual move for
such a large facility, particularly in a sector like energy that
is under strain. The loan was then syndicated to 20 banks.
"The leaders of BNP used to say: my first client is the
French economy," said a person who used to work close to the top
management of the bank. "More recently, they say my first client
is the European economy."
INTERNATIONAL PUSH
As it has pushed to court more international clients, BNP -
long the go-to bank for the French establishment - has played
hardball on some corporate rescues in its home market, according
to six banking and industry sources close to the deals.
It imposed stiffer terms on a 4-billion-euro state-backed
loan for flagship carrier Air France, for example, extracting a
bigger guarantee from the French government following heated
discussions with officials, the people said.
"BNP Paribas was especially difficult," one legal source who
worked on that deal said.
The French finance ministry declined to comment on the
process, while Air France was not immediately available to
comment.
The approach partly reflected prudent risk-management.
But two investment banking sources said the tussle was also
a sign of BNP's desire to ensure it had enough resources to
pursue its international growth strategy without being sucked
into local pressure to bail out too many companies.
"It is more about where BNP wants to allocate capital," said
one of the sources, who was involved in the Air France bailout.
Nonetheless, BNP is still poised to lend significant sums at
home, having said this month it had received 17 billion euros in
demands from French companies for state-backed loans – a higher
proportion than its usual market share for such lending.
Bankers at rival banks said BNP could profit, as a first
step, by picking up mandates to help companies in France that
received loans and needed restructuring or capital injections.
Cementing that kind of work could be key. As government
support programmes start to be wound down, the risk of loans on
its newly expanded books turning sour could increase.
"BNP's balance sheet continues to swell," analysts at
Societe Generale wrote in June. "BNP is more sensitive than most
to changes in credit quality".
($1 = 0.8786 euros)
(Reporting by Maya Nikolaeva and Gwenaelle Barzic in Paris;
Additional reporting by Patrick Vignal, Michel Rose and Sarah
White in Paris, Pamela Barbaglia, Clara Denina and Abhinav
Ramnarayan in London; Editing by Sarah White and Pravin Char)
