Rebound aids BNP and RBS slimming plans

LONDON/PARIS: Royal Bank of Scotland and BNP Paribas stepped up their weight loss programs in the first quarter, taking advantage of improved capital markets to shed assets and satisfy regulators and investors keen for a leaner look.
State-backed RBS is midway through the biggest shrinkage of any bank in the world, and said it has removed 175 billion pounds ($283.5 billion) of its "non-core" assets in the last three years, including 11 billion pounds in the first quarter.
"Excellent progress continues in removing mistakes of the past," Chief Executive Stephen Hester said.
Rivals who fared better during the financial crisis are also in retreat, and France's BNP Paribas said it had almost wrapped up its plan to sell assets to strengthen its finances.
"Eighty percent of the deleveraging is done," BNP Chief Executive Jean-Laurent Bonnafe said in an interview with Reuters Insider television. "We can close everything by the summer."
France's biggest bank has shed 63 billion euros of risk-weighted assets — including 6 billion euros in its investment bank in the first quarter — out of its 79 billion euro target.
Banks are racing to meet tougher rules on capital requirements, and the scale of asset sales, or "deleveraging", is raising concern they are cutting lending and choking off Europe's recovery attempts.
It could hurt small business lending and also areas like trade and project finance or lending to shipping and aviation industries, all areas where French banks in particular have been among the market leaders. Japanese, US and some stronger European rivals are stepping in to take business, but some impact on growth is seen as inevitable.
Europe's banks are expected to shed about 2 trillion euros of assets in the next few years.
The shrinkage is long overdue and is needed to improve profitability at banks that became bloated during the boom years running up to the financial crisis, investors and analysts said.
"The main good news, once again, is the speed of balance sheet progress," said Investec analyst Ian Gordon in regard to RBS. "I would call it decent progress but obviously it remains a long, painful journey."
A rebound in investment banking activity in the first quarter enabled RBS, BNP Paribas and rivals to absorb losses from the sale of assets or restructuring.
BNP said its net income was 2.9 billion euros, up 10 percent from a year before and beating forecasts.
RBS made a better-than-expected first quarter operating profit of 1.2 billion pounds, up 5 percent on the year and bouncing back from a 144 million pound loss in the previous quarter.
At 1158 GMT, BNP Paribas shares were up 3.06 percent and RBS was up 2.77 percent, both outperforming a 0.9 percent rise by the European bank index.
BNP said its return on equity — a key measure of profitability that most banks have struggled to get above 10 percent in recent years — was 11.5 percent in the first quarter. At RBS, it was 11 percent for its core business, and 21 percent at its investment bank.
The retrenchment does come at a cost, however.
RBS said it incurred 460 million pounds of restructuring costs in the first quarter, including 271 million pounds as the investment bank is shrunk to focus on its debt market strengths.
BNP absorbed "adaptation" costs of 84 million euros and lost another 74 million on the sale of loans in the first quarter.
Societe Generale ditched 6.4 billion euros in investment banking assets in the first quarter, losing 226 million euros due to the discount they were sold at.
Lloyds, also part-owned by the UK taxpayer, was this week praised for the pace it was shrinking, but there are concerns that revenues at its core business will also by affected by the process.
There are also clear signs the strong start to the year in capital markets has fizzled. Bonnafe warned capital markets activity had seen a "less positive" start to the second quarter, echoing comments made by Barclays, Deutsche Bank and others.
The euro zone crisis continues to hang over all of Europe's banks, with investors on alert for problems flaring again in Spain and sending financial markets skidding.