BNP Paribas to reinvest $16.3B from Bank of the West sale in new strategy

BNP Paribas SA will reinvest the proceeds from the $16.3 billion sale of its U.S. retail banking business Bank of the West in a new strategy running to 2025.

The French banking giant agreed to sell the California-based lender in December 2021 in the latest exit by a European lender from the competitive U.S. market. Spanish lender BBVA sold its U.S. retail business in 2020, while HSBC exited in 2021.

The Bank of the West sale has provided BNP Paribas with a degree of flexibility as it begins to deliver on a new strategic plan that will run to 2025, which was unveiled during a full-year 2021 earnings call. The lender aims to boost revenues, profitability and shareholder remuneration in the coming years while maintaining a stable level of capitalization.

"We are looking at investing in technology, new business models, bolt-on acquisitions, accelerating organic growth in a number of domains," said CEO Jean-Laurent Bonnafé.

BNP Paribas will examine all areas of its business as it considers how best to allocate the capital. "Looking at the past five, six, seven years, you can see the businesses in which we moved to achieve bolt-on acquisitions: consumer lending, car fleet leasing, private banking, security services, equities platform, payments," said Bonnafé. "So this is the variety of domains we could consider either for bolt-ons or new technology [for] our new business model."

The proceeds from the Bank of the West sale will more than make up for the dilution in earnings per share it has caused, the bank said. "The redeployment of the capital release following the sale of Bank of the West will not only increase the earnings per share by at least 5% in 2025 and more in the longer run, but it will also further increase the return on tangible equity above the target of the plan," said Bonnafé.

BNP Paribas aims to pass the €50 billion annual revenue mark in the coming years as part of the new strategy. The plan sees the lender growing revenues by more than 3.5% every year through 2025 from €46.235 billion in 2021. The increase in revenues will help boost the bank's ROTE — a key measure of profitability — to more than 11% by 2025, it said.

BNP Paribas, which announced profits of €9.49 billion for 2021, is also restructuring its divisions. The bank will now comprise corporate and institutional banking; commercial, personal banking and services; and investment and protection services. Its domestic markets and international financial services divisions have been scrapped.

"Our ambitions can be summarized in three keywords: growth, technology and sustainability," said Bonnafé. "The group intends to foster organic growth, gain market share at marginal cost, create and develop new growth opportunities and generate substantial economies of scale."

BNP Paribas hopes its improved profitability by 2025 will allow it to hit a payout ratio of 60% of profits, with a minimum of 50% in cash. The bank also aims to achieve a common equity Tier 1 capital ratio of 12% by 2025, down from 12.9% currently. It is committed to growing revenue at a faster rate than costs throughout the course of the plan, said Bonnafé.

The strategy assumes that economic growth will gradually normalize following the rebound from the COVID-19 pandemic in 2021 and an "overall limited pickup" in interest rates, said Bonnafé.

BNP's previous strategic plan ran from 2016 to 2020. The group hit or surpassed the main targets for 2020 — a core equity tier 1 capital ratio of 12%, ROTE of 10% and a payout ratio of 50% — a year late in 2021.

"Despite multiple headwinds and the shock triggered by the public health crisis in 2020 and 2021, [the group] managed to meet and even exceed the main targets laid out in the previous strategic plan with a one-year shift," said Bonnafé.