The Strategist

BNP is the most profitable European bank in the United States

11/16/2016 - 14:21

US branch of BNP Paribas SA bank became the most profitable among the European investment banks during the first nine months of this year, according to the company's statement to the US regulators, says Bloomberg.

Laurent Vincenti
Laurent Vincenti
American branch of BNP Paribas - France's largest bank - reported profit before tax of $ 958 million on revenue of $ 3.87 billion, the bank’s reporting show. Previously, the Fed has asked BNP to consolidate all its offices across the US as a single holding company since July of this year.

Credit Suisse Group AG reported a loss in its American units during the same period. The institution links this result to increased cost of business restructuring. Although most of the major European banks have focused on modernization of their businesses, total expenditures of various companies proved to be different.

UBS Group AG made a profit of $ 1.4 billion, which has developed from tax deductions. Income before taxes amounted to only $ 123 million. UBS Bank Group, based in Zurich, has over $ 20 billion of these loans thanks to losses incurred during the 2008 financial crisis

According to registration documents, Deutsche Bank's profit from operations in the United States exceeded total profit of the Frankfurt company for the first nine months of this year. Performance of Deutsche Bank’s branch in the United includes intra-group transactions, which could distort performance of its cost-effectiveness compared to other regional units, said a person familiar with the situation. These intra-group gains and losses are absorbed during consolidation of all enterprises in a global report on the company's earnings.

Deutsche Bank owns the largest number of assets in the US, according to previous data. This information includes assets of bank branches, stored outside the holding companies, as required by new rules of the Fed. Reduction amounted to 34%, compared with 2011, when Deutsche Bank last filed a similar summary report.

European investment banks decided to streamline their sales operations around the world due to reduced profitability. They may apply for certain operations in their offices, such as derivatives trading or large corporate lending. New US banking regulations require companies to align their actions with risk committees, which track all financial transactions.

Inopportune time for reorganization was one of the causes of the European banks’ problems. Given limited income and need to comply with regulatory requirements for higher capital adequacy ratio, cost-cutting has become extremely important. In other words, it was necessary to decide what business should be kept, and what has to be discarded.

European banks have repeatedly criticized the Fed’s banking regulation rules. Banks now are faced with stricter capital adequacy requirements, that is, they cannot freely move capital. At the same time, the Fed stated that the new rules are supposed to prevent relapse of the 2008 financial crisis, when foreign banks received trillions of dollars as financial support.

In addition, scale of European banks cannot be compared to US financial institutions, which, of course, works against them. According to forecast of Morgan Stanley’s analyst, investment banking profits of European financial institutions will decrease by 12% this year. This figure is two times bigger than that of their American competitors.