Societe Generale assigns a Stable rating on BNP Paribas SA (EPA:BNP) (OTCMKTS:BNPQY), despite facing weak spots in retail networks while Banco Santander, S.A. (ADR) (NYSE:SAN) (MCE:SAN) gets a Negative rating as the bank faces several headwinds.

BNP Paribas

BNP Paribas gets stable rating

Brajesh Kumar and the team of Societe Generale note BNP Paribas SA (EPA:BNP) (OTCMKTS:BNPQY) second quarter net profit reports are ahead of consensus. However, BNP Paribas experienced several weak spots at its retail networks in France, Italy and Belgium, as the retail networks experienced escalating cost of risk. The bank’s retail performance was up 5.2 percent thanks to gains from the sale of Egypt’s operations.

However, PBT of BNP Paribas’s corporate and investment banking division dropped 38 percent compared to the previous quarter, primarily due to sporadic client activities and renewed concerns on the Fed tapering announcement.

BNP Paribas SA (EPA:BNP) (OTCMKTS:BNPQY)’s FICC revenues were down 38 percent while its corporate banking revenue was in line with planned reduction in lending, despite posting higher loan losses.

The analysts note BNP Paribas’ asset management unit posted below-par performance mainly due to money market outflows.

The analysts positively view BNP Paribas’ move to expand in Germany.

With decline in risk weighted assets and earnings retention, BNP Paribas’s Basel III fully-loaded common equity Tier 1 ratio stood at 10.1 percent, posting 40 bp growth quarter-on-quarter. Brajesh Kumar and team at Societe Generate note BNP Paribas SA (EPA:BNP) (OTCMKTS:BNPQY)’s leverage ratio is ahead of all other major European peers, enabling its management’s conviction on not raising fresh capital.

Santander gets negative rating

Jean-Luc Lepreux and team at Societe Generale reported that Banco Santander, S.A. (ADR) (NYSE:SAN) (MCE:SAN)’s second quarter net income was in line with consensus.

The analysts reported that with rates in developed markets exhibiting a depressed trend, Banco Santander, S.A. (ADR) (NYSE:SAN) (MCE:SAN)’s net interest revenue shrank 13 percent on year-on-year basis. With other income showing flattish trend, the bank’s top line contracted due to its dwindling interest revenue.

The analysts observe Santander’s €270 million net capital gain on the creation of insurance JV with AEGON N.V. (ADR) (NYSE:AEG) [AMS:AGN] was offset with various restructuring costs.

The bank’s NPL continued to rise in several geographies with an increase of 163 bp in Spain due to restructured loan reclassifications. Societe Generale analysts, however, strike some positive note as they feel headwinds for Banco Santander, S.A. (ADR) (NYSE:SAN) (MCE:SAN) may be subsiding.

Jean-Luc Lepreux and team note Santander’s BIS II CT1 ratio improved to 11.1 percent, up 78 bp on YE 2012, posting a robust 6.8 percent leverage ratio. However, the bank’s Basel III fully loaded CT1 lags better capitalized international rivals.

Societe Generale analysts feel on the home front, Santander’s NIM pressure would ease with the gradual re-pricing of deposits. The analysts exude confidence as they feel Banco Santander, S.A. (ADR) (NYSE:SAN) (MCE:SAN)’s NPLs may be near to peaking, with asset impairments trending off by 2014, in case the AQR concludes positively on the bank’s credit protections.