BNP nightmare at Christmas Helps triggers 70% drop in equities

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(Bloomberg) – BNP Paribas SA, the largest French bank, is shocked by the losses suffered by one of its most famous activities.

The Paris bank recorded a 70% drop in sales in the fourth quarter, the worst performance since at least 2013 and a stark contrast with the gains of its main US competitors. The recession came after a chaotic December, in which BNP traders were baffled by sharp market fluctuations and a series of US trades that went badly around Christmas and lost tens of millions of dollars .

"The book manager made the wrong choice," said Philippe Bordenave, Deputy General Manager in charge of Operations, without identifying the person behind the US derivatives transactions. "There is no negligence, no bad conduct at all."

The decline at BNP highlighted the volatility of equity derivatives. French banks claim expertise in these lucrative and complex products, which now cause headaches throughout Paris. Societe Generale SA had already warned against a shift in its trading activities in the fourth quarter, while its rival Natixis SA announced in December losses and provisions amounting to hundreds of millions of euros. related to esoteric transactions in South Korea.

"There were clearly unusual or one-off losses in BNP's stock trading activities in the fourth quarter, although, for the year as a whole, the evolution of BNP Paribas' this activity was comparable to that of its peers, "said Simon Adamson, a banking analyst at CreditSights Inc. in London. "BNP was probably not helped by its interest in equity derivatives rather than spot shares."

BNP's share trading turnover dropped to 145 million euros in the fourth quarter, compared to the 400 million euros predicted by analysts at JPMorgan Chase & Co. This decline compares with double-digit gains of most of the biggest of the United States. investment banks declared for their share divisions.

Stock performance also contrasted with the "more encouraging" results of less volatile parts of BNP's sprawling activities, such as retail banking and wealth management, wrote analysts at Goldman Sachs Group Inc.

"What BNP's results seem to show you is that there is much more steady and slow growth elsewhere relative to the volatility of investment bank income," said Peter Hahn, a professor at the London Institute. of Banking and Finance. He added that this could pose questions about the additional investments the bank will make in this area.

UBS Group AG, one of BNP's leading competitors in Europe, recorded a 13% decline in fourth quarter share trading revenues. According to JPMorgan, SocGen could post a 23% drop by publishing its results Thursday, Thursday.

Equity derivatives are contracts that derive their value from the underlying stocks. Some are publicly traded while others are designed specifically for each client. They are often more lucrative for investment banks than trading common shares, partly because they can be more volatile.

Performance may signal changes in BNP's Equity Derivatives Unit, on which the Bank relies for the majority of its securities exchange products. The bank plans a series of "targeted measures" on the company, according to a presentation.

At a press conference, Yann Gerardin, Head of Corporate and Institutional Banking at BNP, announced at a press conference that BNP was planning further cost reductions and other measures to improve its profitability. The bank will adopt a "more selective approach" to its business division, Bordenave told analysts.

BNP executives attributed part of the decline to "extreme market movements at the end of the year". The bank's hedges – market bets expected to limit losses – did not work properly, resulting in a loss of approximately 100 million euros in revenue, Bordenave said. Some of these positions could recover in the future, he said.

The bank also lost about $ 80 million over several days on its US derivatives transactions related to the S & P 500. Antoine Lours, head of US index trading in New York, was on vacation when transactions began to fail Bloomberg announced in January. 15 years old, and we do not know if he has since returned to work. Andrew Achimu, a spokesman for BNP, declined to comment.

(Add the comments of the analysts and the quotes of the leaders of the fourth paragraph.)

To contact the reporters on this story: Donal Griffin in London at dgriffin10@bloomberg.net; Fabio Benedetti-Valentini in Paris at fabiobv@bloomberg.net

To contact the editors of this story: Ambereen Choudhury at achoudhury@bloomberg.net, Dale Crofts at dcrofts@bloomberg.net, Marion Dakers, Keith Campbell

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