Everyone loves a good beating. Especially when it’s a bank taking the punches.
Europe’s second-largest lender BNP Paribas gets kicked around like nobody’s business. French politics is sinking into the sewer and Washington keeps finding creative ways to fine the bank — funny how those penalties always spike whenever Paris takes a Middle East position the State Department doesn’t like. And the ECB is probably cutting rates again soon.
A few bad weeks and everyone forgets how to count. BNP earns double digits returns on tangible equity. The capital base is solid. Yet it trades like a lender that forgot its own balance sheet, selling for 72% of tangible book value and an 8% dividend yield. You only see numbers like that when panic takes the pen. In the case of BNP, last time was during peak Covid.
Meanwhile, competition in Europe struts around in shinier suits. HSBC and UniCredit get twice the respect — literally twice the multiple on book, and half the dividend yield. Even Deutsche Bank — yes, that Deutsche Bank — draws a friendlier crowd these days. Not to mention US lenders, which are getting back to multiples last seen fifteen years ago, before the subprime crisis.
But strip out the drama. Since 2012, by all accounts a brutal stretch for European banking, BNP’s book value compounded at 4.4% annually, while returns to shareholders grew 10.2% per year on average. Not JP Morgan territory, but nothing to blush at either. Plus, the French bank is doing what must be done. Its branch network is shrinking — a third gone by 2030 — and its cost-to-income ratio is dropping to match Europe’s leanest operators.
In other news, it grabbed AXA’s asset management arm. A month before, it scooped up HSBC’s private banking arm in Germany. BNP is building serious muscle in a business where scale is religion. The AXA deal turned it into a heavyweight in the European asset management game, just behind Amundi and UBS.
Bonds, equities, treasuries, but also real assets, alternatives, credit — BNP now has the full toolkit its compatriot and market leader Amundi lacks. Old institutions don’t move fast, but when they do, they roll like freight trains. Insurance and asset management will soon make up a fifth of the bank’s consolidated income, cushioning the swings in banking revenue.
Against a challenging backdrop, last quarter’s numbers were good, with pretax profits up over five percent. Investment banking is humming along like it has been for years — a rare feat among European peers — and performance remains decent across all other segments, retail and commercial alike.
So at €66 per share, you’re getting €91 of tangible equity that throws off double-digit returns. Why not? And you’ve got the 8% yield while waiting for the discount to narrow. Which it should, eventually.