BNP/Barclays: the doobry brothers

The financial catastrophe added funding banking to the report of issues whose exact goal is unclear, alongside the thingamajig and the object mystérieux. Higher buffers have diminishing returns, which keep unstable. But the inconsistency of BNP Paribas’s bond retailers and associated asset shufflers cannot be relied on. They have had their third respectable quarter in a row, elevating revenues 35 p.c.

BNP ranks as a holdout in European funding banking alongside Barclays. Other huge EU lenders have slashed their publicity, or are doing so. BNP says it is “industrializing” its firm and institutional banking division. But a bunch cheerfully supply in about 1,000 prime brokerage employees from Deutsche is hardly in retreat from fancy financial market finagling.

Pre-tax earnings rose 9.4 p.c to €2.8bn after a slew of exclusions. Analysts hailed a “beat”. They are merely impressed. The shares had been unmoved. They keep at a feeble two-thirds of tangible e-book prices.

The flattering distinction is with Société Générale at 0.4 cases tangible e-book, in response to S&P Global. The unflattering — and way more pertinent comparability — is with Crédit Agricole at 0.8 cases. In France, as in the US, tractor drivers are larger prospects than the spreadsheet jockeys of hedge fund funding. In every circumstance, ultra-low EU charges of curiosity will do nothing for margins.

Investment banking in the meantime represents a deadweight on valuations. Be grateful BNP is limiting publicity to one-third of the risk-weighted property. This nonetheless represents a wager on the mood swings of European banking regulators. They may fatten capital buffers spherical funding banks further.

The contrarian wager is twofold. First, that regulators will cease sticking pins of their voodoo dolls of BNP boss Jean-Laurent Bonnafé and Barclay’s counterpart Jes Staley. Second, that respectable quarterly outcomes develop to be recurrent. Lex, in no way a fan of accumulator bets, sees larger options exterior banking.

But for BNP and Barclays, there could also be a strategic sense in garrisoning the redoubt deserted by a legion of would-be wealth managers. Some of these are sure to fail.

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