BNP Paribas (BIT:BNP) (EPA:BNP) (OTCMKTS:BNPQY) reported Q1 13 net profit of EUR1.58bn (-45% yoy), well above consensus. Exceptionals did not have a material impact on Q1 13 earnings, while underlying profits (adjusted for CVA/DVA, restructuring and goodwill impairment) increased 35% qoq as revenues rose and loan losses declined this quarter. In addition, the drive to reduce costs by EUR2bn by 2015 is proceeding well, with expenses down 4.2% qoq (inc. EUR155m restructuring charges; cost/income 65%).

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Retail activities (PBT EUR1.66bn, +16% qoq) were supported by lower expenses and impairment charges, albeit with resilient revenues (up in France and Belgium, down in Italy, stable in Bancwest). Most units saw earnings increase qoq, with the exception of Personal Finance, which was impacted by lower mortgage volume. The French retail earnings beat was driven by strong deposit growth, albeit with a decline in lending volume. Despite a good performance, loan losses in Italy increased and still account for 30% of total loan losses (12% of total lending).

BNP Paribas (BIT:BNP) (EPA:BNP) (OTCMKTS:BNPQY) CIB reported a PBT of EUR806m (-30% yoy), missing consensus on sporadic, renewed uncertainties in Europe. That said, performance was much better sequentially as Capital Markets and Advisory revenues jumped 46% (FICC +55% qoq, equities and advisory +23% qoq). Corporate Banking revenues were weak (in line with planned reduction in lending), but the division benefited from lower loan losses. Insurance remains strong (PBT EUR309m, +5% qoq), while Asset management was disappointing (PBT EUR197m, -17% qoq). On a positive note, there were asset inflows of EUR3.1bn during the quarter. With regards to capital, the common equity Tier 1 ratio came in at 10% (Basel III, fully loaded, +10bp qoq). Group 2013 MLT funding programme is EUR30bn, o/w EUR19bn had been raised by mid-April 2013.

BNP Paribas (BIT:BNP) (EPA:BNP) (OTCMKTS:BNPQY) By divisions, the solid performance came from domestic markets except for Italy. French retail performed very well with pretax of €589m vs. JPMCe €504m and consensus €526m, with the beat related to costs (2-3% lower than expected) and provisions lower at €79m or 22bp flat QoQ. Belgian Retail pretax was also better at €204m vs. JPMCe €156m and consensus €170m. BNL performance was however weaker with pretax €84m vs. consensus €93m and JPMCe €81m, and BancWest pretax was also lower at €187m vs. JPMCe €201m and consensus €196m. CIB pretax was broadly in line with consensus at €806m, with lower revenues (Fixed Income -27%, equities -20% YoY) offset by lower costs and provisions. Asset Gathering pretax was in line at €537m.

BNP Paribas (BIT:BNP) (EPA:BNP) (OTCMKTS:BNPQY) Basel 3 capital best in class: Basel 2 Core Tier I declined by 10bp to 11.7% end Q1 13, with the retained earnings (+20bp) offset by the changes in the treatment for insurance (-20bp) and the impact of IAS 19 for employee benefits (-10bp). Basel 3 Core Tier I however increased 10bp to 10% fully loaded end Q1 13, driven mainly by the retained earnings (20bp) only partly offset by the impact of IAS 19 (-10bp). RWAs increased by €26bn or 5% to €578bn as a result of the changes in Basel 2.5 treatment for insurance.

BNP Paribas (BIT:BNP) (EPA:BNP) (OTCMKTS:BNPQY) Asset quality broadly stable: Doubtful loans declined slightly to €33.0bn end Q1 13, down from €33.2bn end Q4 12 with doubtful ratio down at 4.5% vs. 4.6% end Q4 12 and coverage ratio up at 85% vs. 83% end Q4 12. Cost of risk was 60bp in Q1 13 vs. 72bp in Q4 12 and 51bp in Q1 12, with provisions still low in CIB Corporate Banking (26bp vs. 82bp in Q4 12 and 33bp in Q1 12), French retail (22bp flat QoQ and YoY), Belgium (10bp vs. 24bp in Q4 12 and 18bp in Q1 12) and BancWest (25bp vs. 31bp in Q4 12 and 46bp in Q1 12). Personal Finance provisions declined to 171bp vs. 195bp in Q4 12 and 145bp in Q1 12, and Europe Mediterranean as well (115bp vs. 142bp in Q4 12). Cost of risk however increased significantly to 145bp in Q1 13, up from 137bp in Q4 12 and 106bp in Q1 12.

Funding improved: The group issued €19bn of M/L debt year to date vs. refinancing needs of €30bn. Group loans were broadly stable at €609bn end Q1 13 and deposits increased 1% to €558bn. Loan/deposit ratio hence improved to 109% from 111% end Q4 12. Liquidity reserves increased to €231bn vs. €221bn end Q4 12, equivalent to 137% of short term wholesale funding.

BNP Paribas (BIT:BNP) (EPA:BNP) (OTCMKTS:BNPQY) Cost control helped but mixed trends

Cost control in the retail divisions helped to offset weaker revenues. Revenues in retail banking increased by 0.2% Q1/Q1 but costs were down 1.9%. Investment solutions (asset management, insurance) reported positive jaws too with revenues +3.4% (strong insurance result) and costs only up 1.5%. CIB reported negative jaws with revenues down 20% Q1/Q1 but costs only down 15%. In French retail banking revenues recovered up 8% from a low Q4 2012 (ex PEL) with net interest income the main driver. The volatility in net interest income is somewhat surprising.

BNP Paribas (BIT:BNP) (EPA:BNP) (OTCMKTS:BNPQY) loans came down by 1% vs Q4 and deposits remained flat. Europe Mediterranean saw 15.9% growth in revenues Q1/Q1 esp Turkey. BancWest reported negative jaws Q1/Q1 with revenues down 3% (lower rates) not offset by cost control as BNP Paribas (BIT:BNP) (EPA:BNP) (OTCMKTS:BNPQY) continues to invest (+2.4%). At BNL revenues increased 0.8% (fee income) and costs were down 1.6% Q1/Q1.

The investment bank missed with revenues -21% vs Q1 2012 and costs only down 16% partially explained by investments. Fixed income came down by 27% (high Q1 2012 base), equities -19% and financing -18% – all vs Q1 2012. Revenues came down more than RBC(-19% vs Q1 2012) and consensus expected (-18%) but cost control was better than RBC had expected but was in line with consensus.