Saturday, November 8, 2008

Bad Debt Blows Up On BNP Paribas

BNP Paribas, France’s largest bank, had been dodging the kind of devastating losses that forced Lehman Brothers, WaMu and Wachovia into insolvency. It even managed to pick up some credit crunch damaged Fortis,

The French bank last month agreed to take control of Fortis in Belgium and Luxembourg for 14.5 billion euros to gain 3.3 million retail clients and become the biggest lender by deposits in the 15 countries sharing the euro

but now the bank is showing that it’s not immune:

B N Paribas France’s largest bank, had equity-derivatives losses that brought revenue at the securities unit to “below zero” last month, Chief Financial Officer Philippe Bordenave said.

The losses came in a “period of extreme turbulence” and “unprecedented” volatility, Bordenave said today on a call with analysts. They resulted from “lots of different situations across the board” and weren’t related to Volkswagen AG, he said.

The bank blamed the blowup of its securities unit on the collapse of Lehman Brothers and the major Icelandic banks, as well as the impact of ratings agencies downgrading monoliners. The bank said that contributed to the $1.42B loss in write-downs, and the charge for provisions exploded as a result.

Overall, provisions for risky loans soared to 1.99 billion euros ($2.56 billion) from 462 million euros, the bank said, almost triple the 700 million-euro estimate of analysts.

The investment banking division also set aside 462 million euros tied to debt backed by U.S. bond insurers, and 83 million euros for risks linked to Iceland’s banks.

France has agreed to subscribe to €2.55B in subordinated debt issued by BNP Paribas:

Despite the weighty increase in provisions, the need for government assistance, and the deepening credit crisis, BNP Paribas is one of the rare players in its sector to post an actual profit for the quarter.

The financial crisis cost BNP Paribas about 1.7 billion euros in provisions and asset writedowns in the third quarter, excluding 123 million euros of gains from its own debt, the bank said. Like Paris-based Societe Generale SA, Prot, 57, decided not to use new accounting rules that are less stringent on markdowns.

That profit was 56% decline representing a cut in net income to 901 million euros ($1.17 billion) from 2.03 billion euros a year earlier. if that seems unimpressive, then there are lot of banks willing to settle for one just like it.

No comments: