Banking focus - BNP Paribas, a sleeping giant awakes in the UK

Banking focus - BNP Paribas, a sleeping giant awakes in the UK

25 June 2013 / by Oliver Roylance-Smith

With the current state of UK banks seemingly getting worse, we shift our focus to BNP Paribas, a relative unknown on the UK high street. As the fourth largest bank in Europe, we take a closer look at what its credentials are as well as review their recent new launch of investment offerings.

UK banks falling short

Last week the Prudential Regulation Authority (PRA) latest report stated there was a £27.1bn shortfall in the capital requirements of five of Britain’s biggest lenders.

RBS had the biggest gap at the end of 2012, with a reported £13.6bn capital shortfall. Lloyds had a £8.6bn shortfall at last year’s close and has only planned £1.6bn in capital actions, meaning it has to raise another £7bn. Barclays shortfall account for £3bn while Co-op needs £1.5bn. Nationwide has plugged its shortfall of just £400m.

HSBC, Santander UK and Standard Chartered did not need to raise any further capital at the end of 2012.

Shortfall £2billion higher than expected

In addition to the money already raised to strengthen their balance sheets, the PRA told UK banks they needed to find another £13bn of capital. In an assessment to calculate capital shortfalls, following a Financial Policy Committee assessment, the PRA found that the shortfall was more than £2bn higher than its earlier £25bn estimate.

The regulator added: “The PRA has asked firms to ensure that all plans to address shortfalls do not reduce lending to the real economy”.

Europe’s Top 10 biggest banks

With this highlighting the fact that UK banks are firmly under pressure to credibly deliver improvements to their capital adequacy, it is interesting to see how each ranks within their European peer group. SNL Financial’s June 2013 report on Europe’s largest banks gives us some insight – this is a snapshot of Europe’s Top 10 biggest banks, ranked by total assets:

1.    HSBC Holdings: €2,041.3 billion
2.    Deutsche Bank: €2,022.3 billion
3.    Crédit Agricole Group: €2,008.2 billion
4.    BNP Paribas: €1,907.2 billion
5.    Barclays: €1,833.3 billion
6.    Royal Bank of Scotland: €1,616.2 billion
7.    Banco Santander: €1,280.2 billion
8.    Société Générale: €1,250.7 billion
9.    Lloyds Banking Group: €1,149.0 billion
10.  Groupe BPCE: €1,147.5 billion

Of Europe’s 10 largest banks, four are British, with HSBC, Barclays, Royal Bank of Scotland and Lloyds Banking Group. Together the banks hold total assets worth €6.64 trillion, meaning their combined balance sheets are equal to more than three-times the size of the UK’s economy.

BNP Paribas, Europe's 4th largest bank

BNP Paribas features fourth in the European league table based on assets and ranks third based on market capitalization (source, SNL Financial). This makes it one of the world’s largest banking groups with a well-balanced and diversified business model based on three main areas of activity.

Based on the group as a whole, these equate to approximately half in Retail Banking,  a third in Corporate and Investment Banking and a sixth Investment Solutions, the latter including a wide range of savings and investment products.

Strong counterparty

With a current credit rating of A+/A2/A+, BNP Paribas could be considered a robust and stable counterparty in relation to its peers and competition. The latest credit ratings are a follows:

 
Bank
S&P credit rating
Moody’s credit rating
Fitch credit rating
Rabobank
AA-
Aa2
AA
HSBC
AA-
Aa3
AA-
Credit Suisse
A+
A1
A
BNP Paribas
A+
A2
A+
Deutsche
A+
A2
A+
Barclays
A+
A2
A
JPMorgan
A
A2
A+
Societe Generale
A
A2
A+
UBS
A
A2
A
RBS
A
A3
A
Santander
BBB
Baa2
BBB+
Investec
N/A
Baa3
BBB-
Source: BNP Paribas, Bloomberg, as at May 3rd, 2013. For S&P, rating for Long Term Foreign Issuer Credit is quoted. For Moody’s, rating for Senior Unsecured Debt is quoted. For Fitch, rating for Senior Unsecured Debt is quoted.

Key Figures

As at 31st December 2012, BNP Paribas employed around 188,600 people. With locations in almost 80 countries around the world, BNP Paribas is a truly global banking giant, servicing 22 million retail customers and 216,000 corporate clients.

Their revenue for 2012 was €39,072 million and their diversified business model has served them well through the recent banking and global economic crisis, evidenced by a comparatively strong and stable credit rating.

New launch – investment plans

With an increased focus in the UK, particularly aimed at retail customer, BNP Paribas has recently moved into the fixed term investment market. Initially launched under the name StartPoint Investments, their first release is a trio of autocall investment offerings. Autocalls are investments with a fixed term but include the potential to mature early, often referred to as ‘kick outs’.

FTSE Autocall Plan – potential 7.2%

This investment offers the opportunity to mature early or ‘kick out’, provided the value of the FTSE 100 Index at the end of years 2, 3, 4 or 5 is higher than its value at the start of the plan - if it is, you will receive 7.2% for each year invested (not compounded). Therefore, although the FTSE does have to go up in order for the plan to mature, this can be by just one point.

Your initial capital is at risk if the FTSE falls by more than 50% during the 6 year investment term and finishes below its starting value, in which case it will be reduced by 1% for each 1% fall – potentially a fair trade-off for the opportunity to receive 7.2% returns on offer. An arrangement fee applies.

FTSE Step Down Autocall Plan – potential 6.5%

The FTSE Step Down Autocall offers a slightly more defensive investment, since it will return 6.5% for each year the plan has been in place (not compounded) provided the FTSE 100 Index is higher than a particular level at the end of each year (from year 2 onwards). The defensive part of the investment refers to the level falling by 5% each year (from year 2), falling to 80% of its starting value in the final year.

Your capital is at risk if the FSTE falls by more than 50% during the investment term and finishes lower than 80% of its starting value. If this is the case, your initial investment will be reduced by the same percentage as the fall in the FTSE. This plan could therefore an attractive option for those who are prepared to put their capital at risk in order to receive potentially high returns, but who also want some protection against a slightly falling market. An arrangement fee applies.

FTSE Top 3 Autocall Plan – potential 12%

Finally, the FTSE Top 3 Autocall completes their range with returns dependent on the performance of the largest three shares in the FSTE 100 – BP, HSBC and Vodafone.

The plan has a six year term but offers the opportunity to mature early provided the value of all three shares are at or above their starting levels at the end of each year (from year one onwards), in which case you will receive 12% for each year the plan has been in force (not compounded). If the plan does not mature early then provided all shares are equal to or higher than 75% of their starting levels at the end of the term, you will receive a gross return of 72%.

If no investment return is payable then your return of capital is dependent on the FSTE 100 Index rather than the performance of the shares. Your capital is at risk if the value of the Index finishes less than 50% of its starting value. If it does, your initial investment will be reduced by 1% for each 1% fall. You could therefore lose some or all of your investment.

Find out more about the FTSE Autocall Plan »

Find out more about the FTSE Step Down Autocall Plan »

Find out more about the FTSE Top 3 Autocall Plan »

No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

The plans detailed in this article are structured investment plans that are not capital protected and are not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of individual shares, the FTSE 100 Index and the S&P 500 Index is not a guide to their future performance.

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