‘Trading places’: BNP Exane deal takes equities dream an inch closer

A BNP Paribas logo is seen outside a bank office in Nantes, France, July 16, 2020. Source: REUTERS/Stephane Mahe

BNP Paribas is inching forward in its bid for European investment banking hegemony. A buyout of brokerage Exane should help increase stock trading revenue after an annus horribilis this past year. Still, hard the dominant U.S. gamers in equities probably need more local rivals to give up the company altogether.

Exane, which employs 850 people in nine offices globally, generated €21.9m of net profit in 2019.

Nicolas Chanut, chief executive of Exane, said: “Our teams look forward to working even more closely with our BNP Paribas colleagues across prime services, global electronic trading, equity derivatives and equity capital markets to better service clients across the globe.” BNP and Exane did not disclose the terms of the proposed acquisition.

The announcement that Chief Executive Jean-Laurent Bonnafé would like to purchase the remaining portion of the broker BNP does not already own is something of a U-turn.

In 2004, the Gallic lender hived off its cash holdings business to Exane in return for a 50 per cent stake in their joint venture — an implicit recognition that the latter proved to be a much better steward for what was a sub-scale division.

Ever since that time, the lender has rediscovered its ambition. Bonnafé aspires to be a top player in the company of stock trading and underwriting new listings. The French bank’s relative strength in derivatives but disintegrated last year since it had been blindsided by reductions, inducing trading earnings to decrease by two-fifths.

Putting Exane’s implementation company and research onto BNP’s platform will help it recover market share. And Bonnafé should get an adequate return from this device.

Bringing its cost-to-income ratio of 84 per cent according to BNP’s global markets division would yield some 20 million euros in net savings, based on 2019 figures and using a 27% tax rate.

Add it to the 22 million euros of net profit Exane made in 2019, and its implied return on equity would nearly double to a decent 11%.

But Bonnafé’s longer-term ambition of getting Europe’s equivalent of JPMorgan stays far off. Analysts at Tricumen reckon BNP’s share of stocks trading revenue put it in fifth place in 2019, behind UBS, Jamie Dimon’s bank, Goldman Sachs and Morgan Stanley. In fairness underwriting, it came only sixth in Refinitiv’s league tables last year. The top five locations were all held by U.S. groups.

Bonnafé’s best hope of becoming a true rival to the Wall Street companies in stocks will probably be if others pull out or climb. Exane helps Bonnafé’s pursuit a bit. But beating”Les Americains” is likely to stay a long-term aim.