BNP Paribas SA (EPA:BNP) (OTCMKTS:BNPQY) delivered solid quarterly results today, with net income 16% above consensus at €1.358 billion, but the bank will have to find new ways to keep growing in future quarters.

BNP Paribas

BNP Paribas price target

“The beat came from credit costs (with lower coverage) and, at 55bp, it is difficult to see how much lower this can go,” says a recent Jefferies report from analysts Omar Fell, Joseph Dickerson, and Jean Farah. The report sets a price target of €52.77 and gives BNP Paribas SA (EPA:BNP) (OTCMKTS:BNPQY) a Hold rating.

Retail revenues came in slightly below consensus, but the dip was offset by strong investment banking performance. Expenses were also up this quarter because Paribas decided to invest in CIB, and leverage is flat, “suggesting deleveraging has truly stopped,” says the Jefferies report.

Operating profits came in 2% below consensus, while revenues were almost exactly in line. FICC (fixed income, currencies and commodities) were down 3% quarter on quarter and 31% year on year, but other banks performed as poorly or worse.

BNP Paribas analysis

Considering the difficult economic environment that BNP Paribas SA (EPA:BNP) (OTCMKTS:BNPQY) is operating in, a solid quarter with management focused on reigning in costs is a good sign. It shows that the bank is preparing for what could be a slow recovery, and the reinvestment in CIB should hopefully position it to take advantage of the U.S. recovery, though Jefferies’ analysts think that “investors would rather see BNP Paribas meaningfully redistribute capital.”

BNP Paribas SA (EPA:BNP) (OTCMKTS:BNPQY) is well positioned to meet the capital and liquidity rules being pushed by Fed board member Daniel Tarullo that would require foreign banks to meet the same standards as U.S. banks, reports Fabio Benedetti-Valentini for Bloomberg. Many foreign banks’ U.S. divisions have rough quarters ahead of them once the rules are put in place. If loan growth is significantly stronger in the U.S. than in Europe, this would give BNP Paribas an edge over its European competitors. If Europe also starts to rebound this year then retail revenues, which has disappointed most analysts, could easily turn around. It might not be a great time to invest in the financial sector, but BNP Paribas is doing well for its sector.