(Bloomberg) -- BNP Paribas SA slumped as its largest operating business continued to be plagued by headwinds including ill-timed hedges.
Shares of the French lender fell as much as 7.5%, leaving them down for the year, as revenue at the unit that houses retail and specialized businesses such as car leasing fell in the third quarter. The decline reflected developments including softer prices for used vehicles.
While the investment bank bolstered results, a 13% gain in equities trading fell short of estimates from analysts, who had expected a stronger performance at a business that saw major investment in recent years.
Chief Executive Officer Jean-Laurent Bonnafe sought to boost that unit by taking over businesses and client relationships that rivals including Deutsche Bank AG and Credit Suisse were shedding. With the two trading businesses roughly balanced, he’s now building up the smallest of BNP’s three operating units, the insurance and asset management arm.
BNP “reported an underwhelming set of results,” with specialized services, retail and equities trading all disappointing, KBW analyst Tom Hallett wrote in a note. “We had quietly hoped for more.”
BNP Paribas fell 5.7% at 11:22 a.m. in Paris trading, leaving the stock down 1.3% since the start of the year. That compares with a 21% gain in the STOXX 600 Banks Index of 47 European financial firms.
BNP said headwinds at the lending unit included inflation hedges, a flight of Belgian deposits into government bonds, and the European Central Bank’s decision to no longer remunerate mandatory reserves.
Those factors prompted BNP in February to scale back some of its targets. Their impact has been tapering off, though the third quarter still saw a hit of €63 million ($68 million).
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The results contrast with cross-town rival Societe Generale SA, which had suffered from similar challenges. At SocGen, however, they petered out in third quarter, fueling a revenue rebound at the French retail unit and causing the shares to rally.
The main lending business — known as Commercial, Personal Banking & Services — is by far the biggest operating unit at BNP Paribas, contributing more than half of revenue. Bonnafe has been trying to build up the other units as he puts excess capital from the sale of a US business to work.
In his biggest purchase as CEO, Bonnafe in August agreed to buy Axa SA’s asset management unit to create one of Europe’s largest money managers. The proposed €5.1 billion deal would allow Bonnafe to challenge Europe’s No. 1 asset manager, Amundi SA.
Even before the takeover closes, which is expected by the middle of next year, income from asset management rose 7.9% in the third quarter, with new money inflows pushing up assets under management. Wealth management, another business Bonnafe is trying to expand with bolt-on purchases such as HSBC Holdings Plc’s private banking operations in Germany, saw revenue decline slightly.
BNP confirmed its targets for the full year, including a pledge to raise profit to more than €11.2 billion. It said it will update its mid-term outlook when it publishes full-year results, to take “into account the redeployment of capital.”
--With assistance from Arno Schütze.
(Updates shares)
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