France’s largest bank BNP Paribas has enlisted Oliver Wyman and Boston Consulting Group to work on the revamp of its securities unit, dubbed ‘CIB of tomorrow’, sources said.
Bloomberg/Paris
BNP Paribas is considering a reorganisation of its securities unit that may bring the deepest cost cuts since the financial crisis.
France’s largest bank enlisted Oliver Wyman and Boston Consulting Group to work on the revamp, dubbed “CIB of tomorrow,” said three people with knowledge of the matter. The review is settling on areas for cuts and should be completed in the next several weeks, they said, asking not to be identified because the deliberations are private.
BNP, one of Europe’s biggest debt underwriters, joins Deutsche Bank and Barclays in preparing an overhaul as tougher capital rules make some trading less profitable. BNP may target cost reductions of 20% through 2019 at the corporate and investment bank, while trying to increase revenue, the people said. That would exceed the previous round of cuts in 2011 and 2012.
“What they should do is keep optimization in mind — take the heaviest capital-intensive businesses that make the lowest profits and get rid of those,” said David Herro, chief investment officer of Harris Associates, which oversees about $135bn and owns BNP shares. “You have to make those choices and we do trust that they’ll make the right choice.”
Shares of BNP advanced 1.2% to €56.91 by 9:14am in Paris trading, bringing this year’s gain to 18%. That compares with a 17% rise in the Bloomberg Europe Banks and Financial Services Index.
Cuts may centre on fixed-income trading, where capital demands are rising, and derivatives, where an increase in standardization and a move toward exchanges allows room for staff reductions, said Jerome Forneris, who helps manage more than $8bn at Banque Martin Maurel in Marseille.
Scaling back areas such as repurchase operations would free up capital that could be used for more profitable activities, said Jean Pierre Lambert, an analyst at Keefe, Bruyette and Woods in London.
The Paris-based bank has said it plans to lower costs at the corporate and investment bank to 60% of revenue next year, from 68% in the first quarter of 2015.
“It’s very tough to win eight points in cost-to-income over one year,” said Forneris, whose firm owns shares in BNP. “It makes sense to accelerate” cost-cutting, he said.
BNP spokeswoman Julia Boyce declined to comment, as did officials at Oliver Wyman and Boston Consulting.
BNP may report a 27% gain in pretax earnings from its global markets operations to €362mn ($400mn) when it publishes second-quarter results Friday, analysts estimated, helped by the euro’s decline against the dollar.
Yann Gerardin, who became chief executive officer of the corporate and investment bank in October, already merged the fixed income and equity derivatives operations into a single unit, leading to about 100 job cuts in London, a person familiar with the matter said in May. He also gained oversight of the securities-services division.
Together, the units employ about 28,000 people, including some 3,600 fixed income and equity-derivatives traders and salesmen.
“There is room to extract cost efficiency,” as BNP integrates its funds custody unit with the investment bank, said Lambert. “They can avoid overlaps in back-office, information technology, human resources, but also in the front office.”
A 20% cost reduction at the corporate and investment bank would amount to about €1.2bn, based on 2014 expenses. Cost savings from 2010 to 2013 totalled about €1bn, the bank said last year.
BNP relies less on its investment bank than Deutsche Bank and London-based Barclays, which both changed top management unexpectedly this year under pressure from investors.
Therefore, its cuts are not likely to go as deep. The French bank got about a quarter of its revenue from the corporate and investment bank last year, compared with more than half at Frankfurt-based Deutsche Bank.
While BNP is scaling back, it’s also expanding in some areas. The firm is investing €300mn to develop its investment bank in North America and Asia, while also expanding cash-management and trade-finance services and building up electronic trading platforms. The latter may contribute to cost reductions.
“Managing an investment bank like BNP is becoming a job similar to Sergio Marchionne’s or Carlos Ghosn’s,” the CEOs of Fiat Chrysler Automobiles and Renault, said Karim Bertoni, who helps oversee €6bn at Bellevue Asset Management. “Automation is now a dominating trend in trading rooms.”
