BNP Paribas lays the groundwork for its ambitions in investment banking

When Covid-19 triggered widespread shutdowns in Europe last year, one bank emerged more than most as a lender providing cash to jittery businesses in the region.

“You would offer to take a 100 million euro tranche of a loan and BNP Paribas would come in and say, ‘I’ll do anything,'” said a senior executive at a US bank in Paris. “They took advantage of a moment when they had leeway, which was the right thing to do.”

This lending push is one of many markers BNP has set in its increasingly visible drive to do what few rivals aspire to these days: to become the European investment bank of choice for clients, not only in the region but worldwide.

After gains this year in areas where it was not previously strong, including IPO advice, BNP wants to show it’s not just a one-off pandemic linked to nervous rivals who interrupted their loans in 2020.

As it announced this week it is pulling out of U.S. retail banking, selling its Bank of the West operation to Bank of Montreal for $16.3 billion, it wants to round out its new presence. Yorker on the board as he tries to woo companies considering transatlantic business, according to people familiar with his plans.

It also aims to invest more in its Exane research and brokerage business, possibly also in the United States, the sources said. At the same time, it expanded its prime brokerage business to serve hedge funds, taking on client referrals from Credit Suisse and absorbing Deutsche Bank’s prime business which it purchased there. two years ago.

However, the experience of European rivals with large expansion plans provides some warnings about overstretching.

Credit Suisse, for example, is in the midst of a major restructuring, triggered by losses in its prime brokerage business after the collapse of family office Archegos. It was one of many European banks, from UBS to Deutsche, that 10 years ago were jostling to compete as global players with dominant US investment banks such as JPMorgan.

A decade later, all have reduced their presence in the United States, while the two Swiss banks have decided to focus more on wealth management.

Some critics said that by expanding its balance sheet as it courted clients, BNP took too much of a risk © Theo Giacometti/Bloomberg

BNP Paribas has never really been part of this group. Long seen as a solid and reliable commercial bank, it is the largest listed bank in the EU, with around a fifth of its 2.5 billion euro balance sheet made up of French assets. He was seen as lacking the panache of rivals, who are known to recruit “rainmakers” sought out by governments and business leaders for advice.

People who work there said it belied years of gradual expansion, with hirings and acquisitions at BNP’s investment bank long before the Covid-19 crisis.

“It was built over time and clients noticed it long before rivals or analysts,” said Yann Gerardin, a BNP veteran who has led its corporate and institutional banking unit since 2014. BNP Chief Executive Jean-Laurent Bonnafé has been in charge for the past decade.

If the pandemic had hit several years earlier, the BNP might not have pushed as hard as it did to lend to customers from the UK to Germany, when it had no not as wide a range of other services to offer, said Gerardin.

“It’s like a Swiss watch. All parts of the clockwork must fit together. The watch was ready.

BNP is particularly keen to underline its better position on the equity capital markets. His roll call of mandates includes a rights issue for Cellnex, a Spanish mobile phone tower operator, and the stock split of Daimler’s truck business.

Hiring in markets where it was largely absent as an investment bank until three years ago, such as the Nordics, has also generated equity investment there.

During the pandemic, it has capitalized on US banks by focusing on their domestic market, coming in at number three in the Emea investment banking earnings rankings last year. This year, however, US rivals are back on the offensive, and until mid-December BNP had fallen to sixth place with a 4.4% share of revenue, according to Dealogic.

“They’ve definitely been able to take market share, but it’s been a gradual build,” said Credit Suisse analyst Jon Peace.

BNP executives said it was not pursuing the expansion of its investment bank for its own good, but to remain relevant to corporate clients who were increasingly looking to public markets rather than banks. to finance themselves.

Some critics said that by expanding its balance sheet as it courted clients, BNP had taken on too much risk and last month global regulators from the Financial Stability Board ordered it to increase its capital reserves by 0, 5 percentage points by 2023.

The FSB, which monitors systemically important banks, placed BNP in the third of its five categories of banks, based on the amount of reserves they need to cover losses in a downturn. JPMorgan is the only bank ranked higher in terms of exposure, according to the FSB.

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By its own admission, BNP still lags its rivals in areas such as mergers and acquisitions.

Some peers question whether he can make a meaningful mark here, but this year alone he has hired around 100 junior specialists and 30 senior consultants in areas such as healthcare and infrastructure. More hires are expected to follow next year, including a handful in the United States, said two people familiar with the plans.

“Their ambitions are not completely crazy,” said a newcomer. He said he took a pay cut to take the job, but was won over by the bank’s stability and willingness to invest.

BNP also said it had other overlooked assets. When he was hired to advise on a private equity takeover of British supermarket Wm Morrison this year, it was partly thanks to another of his businesses, a property arm which provides warehouse services, including for supermarkets.

The coming year will be a major test of BNP’s renewed momentum, with a strategy day in February. It will have fully absorbed Deutsche’s prime brokerage business and hopes this will help it generate more revenue from institutional clients and hedge funds. Its acquisition of Deutsche’s electronic equity division has also given it a technological edge.

Some competitors remain skeptical. “They have the platform, [and] they will agree on the technology and on the prices because they have a massive track record. But the question is on the side of the relationships and the challenges of getting into the room with the people who make the decisions, ”said a contestant.

However, according to a shareholder: “They are well placed. But everyone is waiting for the strategy update for more details.

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