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BNP Paribas SA (BNPQY) reported net income attributable to equity holders of €1,324 million ($1,695 million) in the third-quarter of 2012. This reflects a substantial increase from €541 million ($693 million) reported in the prior-year quarter.

Huge improvements in the operating and pre-tax income were the main reasons behind the company’s improved financial performance in the quarter. Further, robust capital ratios as well as a healthy balance sheet were the positives for the quarter. However, a decline in the top line and rising expenses posed as the headwinds.

Performance in Detail

BNP Paribas’ revenues came in at €9,693 million ($12,412 million) in the quarter under review, down 3.4% compared with 10,032 million ($12,846 million) in the prior-year quarter.

Operating income came in at €2,185 million ($2,798 million) increasing substantially from €914 million ($1,170 million) reported in the prior year quarter.

Pre-tax income came in at €2,304 million ($2,950 million) for the quarter, surging from €948 million ($1214 million) reported in the prior-year quarter.

Operating expenses and depreciation totaled €6,564 million ($8,405 million) up 7.5% from €6,108 million ($7,821 million). Cost to income ratio stood at 67.7% against 60.9% in the prior-year quarter.

Performance by Segment

Retail Banking: Revenues came in at €6,175 million ($7,907 million), up 2.2% from the prior-year quarter. Operating expenses and depreciation totaled €3,719 million ($4,762 million), up marginally by 0.2% year over year. Pre-tax income came in at €1,712 million ($2,192 million), up 8.8% year over year.

Investment Solutions: Revenues came in at €1,516 million ($1,941 million) up by 3.7% from the prior-year quarter. Operating expenses and depreciation totaled €1,074 million ($1,375 million), surging 3.0% year over year. Pre-tax income came in at €501 million ($642 million), soaring 98.0% year over year.

Corporate and Investment Banking: Revenues came in at €2,381 million ($3,049 million), up by 33.2% from the prior-year quarter. Operating expenses and depreciation totaled €1,467 million ($1,879 million), rising 31.0% year over year. Pre-tax income came in at €732 million ($937 million), improving 7.3% year over year.

Balance Sheet

Total assets as of September 30, 2012 came in at €1,993.6 billion ($2,552.8 billion), climbing 6.1% from €1,965.3 billion ($2,516.6 billion) as of December 31, 2011.

Total shareholders’ equity came in at €84.7 billion ($111.9 billion), climbing from €75.4 billion ($96.5) as of December 31, 2011.

Capital ratios

As of September 30, 2012, the Basel 2.5 common equity Tier 1 ratio (including the European Capital Requirements Directive 3 regulatory regime that came into force at the end of 2011) was 11.4%, expanding 50 basis points (bps) from June 30, 2012.

The Basel 3 common equity Tier 1 ratio, taking into account all the CRD43 rules without transitional arrangements, was 9.5%, escalating 60 basis points from June 30, 2012. This reflected the reduction of the risk-weighted assets and the impact from the revaluation of financial assets available for sale.

Our Viewpoint

We expect BNP Paribas’ diversified business model and sound financial position to keep contributing to its overall growth in the future. Further, strong capital ratios and a healthy balance sheet will prove to be beneficial in the long run.

However, we are concerned about the increasing competition, volatility in the global economy and the effects of the deepening Euro-Zone crisis on the same.

Currently, BNP Paribas retains a Zacks #3 Rank, which translates into a short-term Hold rating. However, its peer HDFC Bank Ltd. (HDB - Analyst Report) holds a Zacks #1 Rank (a short-term Strong Buy rating).
 

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