BNP Paribas, based in France, announced they will be selling their stake in a French real estate company for 1.5 billion euros (approx $2 billion) as the bank looks to increase capital and cut costs. This new vision spawned from its dismal 51% drop in net income for the quarter that ended on December 31.
BNP Paribas is one of many different European based banks that is trying to cut costs and increase cash reserves. As of right now, the bank has a Tier 1 ratio of 9.2% which is under the required amount set down by the European Banking Authority. Tier 1 ratio is an indicator that tells how well the banks will be able to handle financial shocks.
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To further increase its Tier 1 to proper levels, the bank said they would sell its 28.7% stake in the French real estate company, Klepierre to Simon Property Group, which is based in Indianapolis. Simon Property Group said they would pay 28 euros for each share which is 19% above Klepierre’s share price Wednesday.
BNP Paribas also sold its North American energy loan business to Wells Fargo which had $9.5 billion in financing commitments.
BNP Paribas is just one of the many banks that has been hit by the European debt crisis which has ravaged its earnings. Most of its 51% loss in net income was due to a Greek debt mark down by 75%. The bank also sold some of its debt holdings at a loss which hit underlying numbers as well.
The French bank was also among 500 other banks located in Europe that took a three year loan from the European Central Bank’s 500 billion euro bank relief fund. The idea was to have the ECB open a line of credit to European banks so that there will be less bank failures and more money flowing through the system. However, some critics say this will only hurt the ECB over the long term because it is projected that unless economic conditions turn in Europe, the central bank could be taking a loss on some of that money. This was a similar phenomenon in the US back in 2008 when the government bailed out quite a few banks and the automakers. There are billions of dollars that the government will never see again. Bottom line is banks are trying to get back to growth friendly environments but I would stay away for now.