(Bloomberg) -- BNP Paribas SA posted better-than-expected profit for the first quarter as provisions for souring loans remain benign and Chief Executive Officer Jean-Laurent Bonnafe steps up costs cuts.

Net income of €3.1 billion ($3.3 billion) came in well ahead of the €2.48 billion analysts polled by Bloomberg expected, helped by lower than expected provisions and a decline in expenses.

Income from buying and selling debt securities, currencies and commodities slumped 20% from a year earlier, worse than analysts had expected. That offset strong gains in equities trading and capital markets. 

Bonnafe has built up the equities business and used proceeds from the sale of a US unit to beef up the insurance arm. But the large fixed-income desk has recently become a drag on results, underperforming Wall Street for four quarters in a row. That’s added to headwinds such as a Belgian banking tax and the European Central Bank’s decision to end payments on reserves, which already prompted the CEO to seek an additional €400 million in recurring savings and scale back some performance targets.

BNP explained the decline in fixed income trading by a strong performance a year earlier and its bias toward Europe, which was more impacted by lower volatility. Demand picked up in March, the bank said.

“We have a very high base a year ago,” Chief Financial Officer Lars Machenil said in an interview on Bloomberg TV. “If you look at the longer term, you clearly see that we are up on market shares.”

Revenue from equities trading rose 11% in the first quarter, beating the 6% gain posted by Wall Street’s largest banks. Bonnafe made that unit a priority in recent years, taking over businesses that peers Deutsche Bank AG and Credit Suisse shed as they sought to reduce their risk profiles. He added to those deals late last year, striking an agreement to take over part of HSBC Holdings Plc’s business that caters to hedge funds.

What Bloomberg Intelligence Says:

BNP Paribas’ 1Q report lays positive foundations into 2H lifted by consensus beats spanning revenue (2%), costs (3%) and impairments (29 bps charge vs. 38 bps expected), which may see full-year EPS estimates edge 1-2% higher. Costs lowered 1.5% vs. 1Q23 (down 8% in Global Markets) stand out, while the revenue boost and confirmed full-year goals could reverse negative sentiment after targets were trimmed alongside 4Q results. A 20% drop in fixed-income revenue in the investment bank disappoints.

— Philip Richards, BI banking analyst

BNP 3% Cost Beat, Confirmed 2024 Goals Suggest EPS Boost: React

BNP also did well in advising companies on selling bonds and stocks, with revenue at the global banking business up 6.1%. That was driven by a strong performance in capital markets in the Americas and Europe.

Shares of the French lender rose 1.1% at 9:09 a.m. in Paris trading, bringing gains this year to 9.4%. 

The Commercial, Personal Banking & Services unit, which houses the retail banking operations, saw revenue gain 0.4%. While high interest rates help lift income from lending, the business suffered a €151 million hit from inflation hedges in France, a flight of Belgian deposits to government bonds, and the ECB’s decision to no longer remunerate mandatory reserves.

Net income for the group declined 30% from a year earlier, when BNP Paribas completed the $16.3 billion sale of Bank of the West. The firm has said it expects half of the proceeds from the sale to be deployed by the middle of this year. 

Earlier this month, the bank agreed to buy Fosun International Ltd’s stake in Belgian insurer Ageas for about €730 million. Last, year it acquired a 5% stake in French reinsurer Scor SE. 


(Updates with CFO comments in sixth paragraph.)

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