French protests show BNP Paribas what’s in a name
Despite a strong third quarter, a bumpy journey lies ahead for investors
If a company’s name includes two variations on the word “Paris”, it is hard to complain when investors zoom in on its Frenchness. Nonetheless, recent political unrest has knocked shares in BNP Paribas — the National Bank of Paris, Paris and the Netherlands, for the literal-minded translator — more than fundamentals warrant.
BNP’s shares fell 21 per cent over the past three months, making it the second-worst performer in the Stoxx sub-index of large Eurozone banks. The only group to drop further was French neighbour Société Générale. That’s despite a strong third quarter for BNP, which this week reported pre-tax profit up 18 per cent year on year and revenue growth across all its main divisions.
How is it doing so well when the French economy is shrinking and consumer confidence is at a 13-year low? In fact, France accounts for less than 10 per cent of group pre-tax profits, down from 20 per cent a decade ago, and less than half its consumer and business bank revenue and profit. BNP holds only €19bn of French government bonds on a €3tn balance sheet, so is hardly at risk of the sort of doom loop that investors feared during the Eurozone crisis.
BNP is not the only bank that has found itself used as an inaccurate proxy for a nation. Santander earned just 13 per cent of pre-tax profits in Brazil in the first nine months of the year, but its stock swung wildly before and after the recent presidential election. Insiders believe its large size and liquidity encourage hedge funds to use it as a way to make short-term political bets without taking Brazilian currency risk.
Such disconnects should create an opportunity for investors, eventually. But it is likely to be a bumpy journey. French assets rebounded from their lows when the government avoided a credit rating downgrade, and could get another boost if it manages to pass a budget. But next year’s presidential election will remain an overhang, particularly with far-right leader Marine Le Pen currently ahead in polls.
Some executives at French companies have tentatively started trying to ease fears around a potential Le Pen victory, arguing that she has more in common with Italian Prime Minister Giorgia Meloni than the more radical Alternative for Germany. Meloni has managed to keep rating agencies on side during four years in power in Italy. Still, even a “normal” election between moderate candidates tends to cause a certain amount of stock market volatility.
In the meantime, there’s not much for BNP’s management to do besides focusing on what they can control, including preparing a new medium-term plan due next February. And maybe to hope — in traditional French fashion — that someone pays attention to their protests.