BNP Paribas: BMO has received authorizations to finalize the takeover of Bank of the West – 01/18/2023 at 09:50

(AOF) – On December 20, 2021, BNP Paribas announced that it had reached an agreement with BMO Financial Group for the sale of its commercial banking activities in the United States operated by its subsidiary Bank of the West. BMO Financial Group has confirmed receipt of the necessary regulatory approvals to complete the acquisition of Bank of the West. No further regulatory clearance is required to complete the transaction. This is expected to take effect on February 1, 2023, “subject to the satisfaction of the remaining customary completion conditions set out in the agreement”.

​The final financial impacts of the transaction will be provided on February 7, 2023 with the publication of BNP Paribas’ 2022 annual results.

BNP Paribas had announced the sale of its American subsidiary, Bank of the West, for 16.3 billion dollars in December 2021. “The operation should generate an exceptional capital gain (net of tax) of approximately 2.9 billion euros as well as a positive impact on the equity ratio (CET1) of the BNP Paribas group of around 170 basis points “said the French bank at the time.

During the presentation of its strategic plan for 2025 last February, BNP Paribas indicated that the “progressive and disciplined redeployment of the capital released” by the sale of Bank of the West should allow an additional increase in net earnings per share of more than 5% by 2025. Excluding the impact of this sale, the bank expects average annual growth of at least 7% in its net income, group share, over the period.

“BNP Paribas’ presence in the United States is a long-term one, benefiting in particular from a solid franchise in Corporate & Institutional Banking, which has recently been strengthened. BNP Paribas’ presence in the United States remains a strategic pillar of its development. BNP Paribas will thus continue to strengthen and develop its franchise in Corporate & Institutional Banking at the service of international clients.” declared Jean-Laurent Bonnafé, Managing Director of the BNP Paribas Group.

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Key points

– Bank ranked 7th in the world, created in 1822 and strengthened in 1999 by the merger with Paribas;

– Net banking income of €46.26 billion generated by international financial services (34%), banking networks (35%) and investment banking (31%);

– More than 80% commitments in “rich” countries: France for 32%, Belgium & Luxembourg for 16%, Italy for 9%, other European countries for 19%, North America for 13%, Asia-Pacific for 6 %;

– Business model based on diversification in locations and businesses, synergies and cooperation between businesses, on operational innovation and for customers;

– Capital held by the Belgian State (7.7%), the Grand Duchy of Luxembourg (1%) and the employees (4.4%), with a board of directors of 13 members chaired by Jean Lamierre, Jean- Laurent Bonnafé being Managing Director;

– Financial soundness with, at the end of September 2022, a CET 1 of 12.1%, a leverage ratio of 3.9% and liquidity of €441 billion.

Challenges

– GTS 2025 plan for growth, technology and sustainability aimed at:

– 11% return on equity, annual growth of 3.5% in NBI, self-financing of transformation and investments and distribution rate of 60%, including at least 50% in dividends:

– Highest rated innovation strategy in the sector and focused on digitalization:

– internally: support for intrapreneurs (Lux Future Lab, People’sLab4Good, Bivwak),

– in the offer to customers: 4.4 million “digital” customers, leader in France in digital functionalities, world-leading platforms in government bonds, forex or swaps and in the top five European neo- banks with Hello Bank!,

– partnerships with Plug and Pay to accelerate start-ups;

– Environmental strategy aiming to become the world leader in sustainable finance (2nd worldwide in green bonds and 1st in Europe, 1st European funder of renewable energy projects) and aiming for carbon neutrality in 2050,

– by 2025, €350 billion mobilized in sustainable loans and bond issues and €300 billion in sustainable investments;

– alignment of the loan portfolio with the trajectory of the Paris agreement, including the end of coal financing in 2030 in Europe,

– funding of €4 billion for biodiversity;

– Growth potential: €2 billion in additional annual NBI through acquisitions and partnerships in innovative technologies and models (bpost bank, Floa, Kantox and Stellantis), supported by €7 billion from the sale of West Bank.

Challenges

– Change in net book assets, €79.3 at the end of September, compared to the stock market price;

-After increases of 6.9% in net banking income and 22.6% in net income in the 1st half, confidence in the medium term in the strengthening of margins brought about by the rise in rates;

– Share buyback program for €4 billion.

The negative effects of rising interest rates

The rise in interest rates normally causes an increase in bank income through the loans granted. In Europe, according to a survey conducted by S&P among 85 banking establishments, the sector expects on average an 18% increase in its net interest income. However, this new inflationary context also has undesirable effects, in particular an increase in refinancing costs. It is also accompanied by the fear of a new recession, which would then affect all the bank’s businesses, ranging from loans to asset management, whose income is correlated to market valuations. Reassuring element: the banks of the euro zone are sufficiently solid to face a deterioration of their environment.

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