(Bloomberg) -- BNP Paribas SA relied on its traditional strength in fixed-income and higher interest rates to lift revenue in a challenging first quarter for banks.

Income from debt trading rose 9% and global banking, which houses the capital markets and advisory businesses, jumped 16% from a year earlier, BNP said in a statement Wednesday. That and higher lending income at the retail unit helped offset declines in equities trading, a business Chief Executive Officer Jean-Laurent Bonnafe has prioritized for growth. 

BNP restated earnings for last year after adapting new accounting standards and closing the sale of its Bank of the West subsidiary in February, making a comparison with analysts’ estimates difficult. The disposal lifted net income by almost €3 billion in the quarter, even as costs rose and the end of cheap central bank funding for lenders weighed on revenue.  

The Bank of the West sale has handed Bonnafe a giant war chest for acquisitions and payouts to shareholders. The CEO, in the role for more than a decade, has made a series of bolt-on purchases in the past, including in equities, but shied away from larger targets in favor of buybacks, even as rivals step up deals.

UBS Group AG in March agreed to buy Credit Suisse Group AG in a government-brokered rescue that’s changing the landscape of Swiss banking. Deutsche Bank AG last week announced its biggest purchase in more than a decade with the acquisition of London-based boutique Numis Corp.

“We are not interested in buying anything that has the word bank in it”, BNP Chief Financial Officer Lars Machenil said in an interview with Bloomberg TV.

Bonnafe had been taking over assets and clients from both Credit Suisse and Deutsche Bank in prior years as those firms cut back equities trading. Yet that business at BNP struggled in the first quarter, with revenue declining 20%. That compares with an average 14% drop on Wall Street.

All told, BNP’s trading unit still did better than most peers, as did the global banking business, though the French lender includes transaction banking in that division, making a comparison difficult.

Outside the investment bank, BNP is starting to see the tailwind from rising interest rates, which helped lift net interest income by 11% at the Commercial, Personal Banking and Services unit. In a quarter where several regional US lenders collapsed and Credit Suisse was forced into a rescue, BNP saw deposits increase 1.2% from a year earlier.

BNP rose 0.5% at 9:03 a.m. in Paris trading, bringing gains this year to 7.6%.

“We view this as a reasonable, if not unspectacular, set of results,” analysts at Keefe, Bruyette & Woods wrote in a note. BNP posted a strong performance in the investment bank, while the asset management business “underwhelmed.”

What Bloomberg Intelligence Says:

BNP’s strong 1Q report — with 5.3% revenue growth fueled by the investment bank (€4.9 billion revenue and FICC’s 9% lift outshining peers) — and confirmed 2025 targets position the lender well for estimate upgrades and market-share gains through 2023. Multiple restatements cloud consensus comparisons, but 150-bp positive operating jaws (with underlying costs up 3.8%) and low 28-bp cost of risk add earnings support, and both appear to be sustainable.

— Philip Richards, BI banking analyst

BNP’s €4.9 Billion CIB, Consensus Beats Confirm Peer Lead: React

While the Bank of the West sale lifted net income, operating income declined in part because of restructuring costs at the consumer finance unit. Revenue was impacted by adjustments of hedges, after the European Central Bank late last year toughened terms on a cheap source of longer-term funding for lenders, BNP said.

Machenil said the central bank has handled the challenge posed by the reemergence of high inflation rates well and Europe should be able to avoid a recession as a result. 

Bonnafe has said he only wants to use part of the proceeds from Bank of the West for deals, with the rest earmarked for shareholder distributions. BNP has already embarked on the first tranche of a €5 billion share buyback announced in February, with the second tranche expected later this year.

--With assistance from Anna Edwards and Macarena Muñoz.

(Updates with CFO comment in sixth paragraph, shares in 10th.)

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