Breakingviews: BNP Exane deal takes equities dream an inch closer

BNP Paribas is inching forward in its bid for European investment banking hegemony. A buyout of brokerage Exane should help boost stock trading revenue after an annus horribilis last year. Still, challenging the dominant U.S. players in equities probably requires more local rivals to quit the business altogether.

The announcement that Chief Executive Jean-Laurent Bonnafé wants to buy the rest of the brokerage BNP doesn’t already own is something of a U-turn. Back in 2004 the Gallic lender hived off its cash equities business to Exane in return for a 50% stake in their joint venture – an implicit recognition that the latter was a better steward for what was a sub-scale division.

Since then, the bank has rediscovered its ambition. Bonnafé aspires to be a top player in the business of stock trading and underwriting new listings. In 2019 he scooped up Deutsche Bank’s prime brokerage business, which lends to hedge funds and asset managers. The French bank’s relative strength in derivatives, however, disintegrated last year as it was blindsided by losses, causing trading revenue to decline by two-fifths.

Placing Exane’s execution business and research onto BNP’s platform will help it recover lost market share. And Bonnafé should get a decent return out of the unit. Bringing its cost-to-income ratio of 84% in line with 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 that to the 22 million euros of net profit Exane made in 2019, and its implied return on equity would nearly double to a respectable 11%.

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

Bonnafé’s best hope of being a true rival to the Wall Street firms in equities will be if others pull out or scale back. Deutsche Bank, for example, in 2019 completely exited the business of share trading. Exane helps Bonnafé’s quest a bit. But beating “les Americains” is likely to remain a long-term goal.

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