Introduction to BNP Paribas group
The BNP Paribas had been established in 1999. This was after the merging of Paribas and BNP in which later on, became the longest-serving in Europe’s stock market with a market capitalization of about 80,000 employees. In the year 2000, the company was essentially operating in France despite having various operational sites in more than 80 countries.
BNP Paribus has tremendously evolved in the last ten years due to the technological advancements in the market, highly competitive market environment and also the invention and innovation in the industry. The modification has been done with success as they have been able to seize the various opportunities they come across with the full focus of their strategic goals. The company, in order to realize its strategic goals, has been in dire focus on mitigating the balancing of the business mix, cost-cutting on the various projects undertaken and also the management of various risks involved by the risk management personnel.
In the current years, BNP Paribus has emerged as the largest bank in the eurozone with the largest employee turnover of approximately 200,000, maintaining the top-tier status and also setting the global footprints for other companies and banks to emulate. Currently, BNP Paribas has four domestic markets including Italy, France, Luxembourg and Belgium and this has been inherent in turning the bank into more solid with a magnificent human touch.
In the year 2007, various financial institutions globally had been affected by the economic recession and many of the institutions collapsed. This mitigated the public trust in the various banking institutions and, therefore, the customer turnover declined. Central Banks in various countries had to intercede in order to restore public confidence in the banking institutions. France was among the countries that intervened, and its main intention was to provide the banks with the amount of currency needed in order to prevent credit evaporation. After the crisis had been solved the unemployment and economic deterioration followed in many parts of the continent.
BNP Paribas, during this economic crisis period, focused on its development model which will be aimed at customer satisfaction. The model also focused on risk management techniques, genuine flexibility, and the business portfolio balance. Within these three years BNP Paribas, using the development model, was able to survive the dire economic eventualities and were able to make profits. This enhanced the Group in increasing its market shares in different parts of the world in relevant to cementing its ambitions in Europe in accordance with its strategic goals. Recently the Group has been able to complete the various cross-border dealings by the acquisition of the Fortis Banque and BGL. This acquisition has marked a tremendous increase in the Group’s market share, and also in accomplishing its main objective of helping its clients in realizing their goals.
In accordance with this integration that is the acquisition of BGL and Fortis Banque, the bank now dominates in the European banking sector and is the largest deposit bank in the region. The bank currently has a deposit of EUR 450 billion and has got over 100 Production Centers in more than 25 countries. In the course of 2009, BNP Paribas employees worked tirelessly in order to achieve the desired company potentials. The staff efforts had been realized as they were able to, almost, double the share price of the Group in a year and this had an upper hand in retaining the shareholder’s confidence. This was shown when in October 2009 the share issue was successful, and the Group was able to repay the government funds, and also set up the capital in case of future economic and financial imbalances.
Despite the various economic imbalances in the year 2009, the Group performance was extremely well as it registered a 93% rebound in the net income to an equivalent of EUR 5,832. This was the effect of the dire efforts in which the employees were employed. The Retail Banking Industry was faced with severe hiccups from the effects of the global recession, but it was well managed. The main intent of the strategy deployed by Retail Banking is to team up the various resources and the technological know-how of BNP Paribas in the whole of its retail banking. The BGL and Fortis Banque operations have been well consolidated into the Group without the negative consequences; this has been facilitated by the well-organized Retail Banking sector.
French Retail Banking has been the key factor in ensuring that the Group meets its core commitment of providing French clients with Finance. The sub-sector has utmost 31,000 employees and who enabled the success of the companies operations. This increased the number of loans given to individuals by 5.3% and that to Companies increased by 3%.
In that year, personal finance impeccably demonstrated tremendous flexibility and was able to, wholly, offset the increasing cost of risk management due to the increased gross income. Various emerging markets faced an adverse effect on their operations due to the importunate weak economy of Americans and the consequent economic recession of Ukraine. The BNP Paribas and the BGL BNP Paribas both had a group contribution of EUR 708 million to their net income. This outstanding contribution saw various market groups renewing their sales momentum. For instance, Belgian Retail Banking experience high-client turnover following the launch of new and popular marketing campaigns in the mid of 2009. Luxembourg retail banking faced reasonable growth in both deposits and loans.
In that period of 2009, Investment Solutions increased due to the remarkable global crisis resistance. The net inflows in all the main businesses increased to EUR 25.5 thus bringing up the rate of the asset inflow annually to 5.1%. These were entirely the assets under the Group’s management. On the other hand, Corporate & Investment Banking (CIB) boosted the overall Groups profits due to stability in the market conditions. However, the main incentive deployed by CIB in the realization of its goals is the devoted efforts of the employees in which they were involved in the rescaling of the various risky undertakings, controlling of various inherent costs incurred, and majoring its focus on the company’s product line. These undertakings enabled the CIB to, globally, return to stability and enhance the BNP Paribas’ overall profit to increase. This most achieved performance is well articulated to the diversified operations and the quality of its operations, the clients’ strength and the ease in adaptation to the con-current change in the market conditions.
Although the Group is perceived to be among the banks which was able to endure the economic crisis, various measures to curb future economic imbalances have been put in place by the bank. This positive measure undertaken focuses entirely on the payment basis of its traders. The reforms that have been undertaken incorporate the new and emergent standards, set out by G20 which in turn reveals the inherent compensation strategies for its employees.
The main challenge facing BNP Paribas is the rebuilding of the Banks’ image and rapport which had initially been affected by the economic recession. To curb this, Group is intensifying the regulations but to the limit to which it can finance its clients. The Group is also being involved in convincing customers and shareholders of their role in the economic recovery and also the economic growth.
The Group’s development model has its basis on balancing its various businesses, that is, CIB, Investment Banking and Retail Banking in order to acquire permanent customer satisfaction. This is done by the combination of various cost control policies and risk management techniques. Currently, Retail Banking generates at least EUR 18 billion on its annual revenue and with this, they have an intention of rolling its incorporated model by the diversified knowledge sharing and the joint investments undertaken. The CIB business model is majorly focusing on customer initiatives. It aims at expanding its operations in various countries and also on the leadership positions in various parts of Europe, and also encourages tremendous growth in the Asian market. Finally, Investment Solutions is planning in boosting its cross-selling to various retail branches available domestically and also win new customers in the industry.
The other challenge facing the BNP Paribas is the integration of Fortis Banque as this will increase the scale of its operations as a whole. In essence, the merger will have an impact on the company’s asset management, insurance strategic partnership, other private banking operations, and also the company’s security expansion. They also focus on the penetration of its market to the interior of the Asian market in order to have a wide market or consumer base. This will go along the way in the realization of the company’s strategic goals. The BNP Paribas has had a close relationship with its clients over the past years. This enabled the Group to realize a fair, competitive advantage which was the profound factor in the process of weathering the economic crisis that was impacted in the latter years. The clients’ trust has been well endowed, and this has been built by the inherent quality products and services provided by the company. The Group’s capital outlay has doubled since the time it experienced the economic crisis. This has been facilitated by the company majoring on the expansion of its sales, restoration of public opinion concerning banks and also the creation of the shareholders’ value upon their investment undertakings.
The major strategies in which the company has been deploying are; balancing the business mix, cost-cutting on the various projects undertaken and also the management of various risks involved by the risk management personnel. The company, upon focusing on these strategies will be able to undertake its operations successfully in the future. For instance, as the various new marketing concepts are being effected in the banking sector like the technological advancement, there will be an increased client or customer turnover and, therefore, increase its operations. The increase will have a consequential effect on the risk exposure on the business. This will be easily catered for by the available risk management personnel. Thus, the company will be able to perform various risky undertakings in order to increase its revenue outlay without any fear of running at a loss.
The balancing of business mix will encourage the company to be able to meet its mitigation and also satisfy the various clients with ease. The deployment of various business activities to various parts of the country will encourage the company’s prevalence of maximizing its revenue and, therefore, able to meet its strategic goals with ease. The enhancement of the cost-cutting initiative will provide the company with an efficient base of providing for its clients with ease. For instance, this will go along the way in the minimization of the various inconsequential costs incurred by the company. The company will be able to realize its financial stability and, therefore, combat any financial and economic crisis that it will face in the near future and by doing so it will realize its strategic goals with ease.
In general, the BNP Paribas will be able to deal with the future economic crisis upon the implementation of the various strategic undertakings. This will make the company compatible in the future with any inherent and adverse economic conditions that may prevail in the economy. However, the competitive nature of the Group as a whole will be facilitated by the increased strength in the domestic financial market. This will enhance the implementation of the value-risk pricing model which enhances capital allocation efficiencies and also generate a high revenue growth rate. The implementation of cross-selling value-added products in the Group will provide significant growth in the business sector which will enhance the corporate strategy of trade finance, cash management, fixed income and structured finance.
Financial Values Analysis
The company’s financial performance in its third quarter of the year 2010 was at par, and the performance was by far better than its performance of the previous period that is the year 2008 and 2009. The company’s net profit was reported to be EUR 1.9 billion in the third quarter of 2010. This was an increase of by 46% from the previous year’s third-quarter profits. The performance was majorly articulated to the cohesive work of the employees which saw the company participating actively in the real economy financing. The decline in the cost of risk (by 46.9%) was also a vital incentive that had an upper hand in the high-profit realization; this was due to the active risk management personnel. The Groups’ business model also encourages profit maximization with the intent of high-consumer turnover, which encouraged the revenue increment.
The revenue for the third quarter of 2010 was 10,856 which was high by a margin of 1.8% to that of the previous years’ 2008 was 27376 and 2009 was 40191. Despite the inconsistent in the operations of the three businesses, the fall in the CIBs’ Revenues compared to the previous years’ quarters was offset by the concurrent increase in revenues for Investment Solutions and Rail Banking.
The debt revaluation in this quarter was less negative compared to that of the previous period (-110 and – 308 for the third quarter of 2010 and 2009 respectively). This was due to the impact of restructuring costs on the integration of Fortis and also the costs incurred by CIB, as in the previous year it was not put into consideration, as it was seen as less significant at that period.
The pre-tax income was reported to be EUR 3,151 million which was an increase in the previous period by a margin of 28.9%. This was facilitated by the increase in income for Retail Banking which had the income contribution from the other businesses to balance.
For the analysis of the first nine months up to September this year, the Groups’ revenue rose by 11.4% to EUR 33,560. The gross income for the period rose by 7.7% from the previous years’ nine-month period. This was due to the constant exchange rates and its scope experienced by the company. The cost of risk reduced sharply by 43.7% to a value of EUR 3,640 this also enhanced the increase in the Net Income which is attributable to shareholders by 40.9%. The increase has provided for a solid base for the Groups’ capital outlay and the inherent strength in the capability of generating future capital.
The EPS was EUR 5.1 in the period 2010 compared to EUR3.7 of the previous years; 2.99 in 2008 and 5.20 in 2009, and the annual Return on Equity (ROE) was approximately 15.4%, which was an, increase from 13.2% in 2008 to 6.6 while in 2009 10.8from the previous period. This shows that the company is able to have an increased capital outlay from the issue of its shares, and can finance its undertakings with ease without any financial constraint. This shows how the investors have been fairing in regard to the investment in the BNP Paribas Group this shows the firm’s financial performance.
The merging between the BGL BNP Paribas and the BNP Paribas Fortis for the benefit of the Group is being carried out with ease across the various business functions, units and territories. The business operations are confined under one initiative and, therefore, enhancing the ease in the managerial implications and also the allocation of resources to different undertakings.
In general, the analysis for the cost of risk and the revenue outlay of the financial performance of different business operations in the group is analyzed as follows;
The information is for the third quarter of the year 2010 and the percentage increase or decrease from the third quarter of the year 2009.
The revenue for the other group divisions is analyzed as follows;
The group’s divisions’ revenues increased tremendously for the previous period revenue due to the management competency and the deployment of various competent employees to the various operational units. The investment solutions posed a high-revenue outlay due to the management diversity on the business mix implications. Despite the inherent decline in the quantity of the transactions involved in this division, the asset management revenues stabilized as there were highly efficient performances from the private banking and the resilience of the investment banking. Terry Maness and James Henderson assert that the other implications that had a significant, positive impact on the increased revenue for the division prior to this period are the investor’s risk aversion nature. In essence, the investors were able to reduce the cost of risk tremendously and, therefore, the company’s pre-tax income increased (p.211).
The BancWest reported a negative change in its revenues for the current period prior to the revenue reported in the financial year 2009. The negative imposition was due to the division, the struggle in the business operations, in the new market. The business unit has been re-established in the US and; therefore, it had to incur some additional costs for it to be able to pick up with its operations. For instance, the operating expenses for the business reported an increment of 8.4% and, therefore, have diverse consequences in its revenues. The business operation also experienced a low-mortgage exposure due to the various negligible foreclosures.
Overall, the Group reported an increase in the common equity tier 1 ratio. That is from 8.0% to 9.0% in the year 2010. This implies that the Group strength financially is increasing and, therefore, in the long run, the Group can easily increase its capital outlay from the investments made. The Group’s expertise was put into a test on the integration of the two divisions into the main Group. In essence, the integration was successful and; therefore, the Group employees had much-devoted expertise to the success of the business. On the other hand, the Group’s cost of risk declined and thus the main cause for the increase in the net earnings per share for the shareholders and also the percentage increase in the annualized Return on Investment (ROE). There were also significant increases in the insurance sector on the sale of its General products. This was facilitated by the trust embodied to the Bank by the clients and; therefore, they were assured that their investment will not be taken for granted.
In the social responsibility sector, the Group had strengthened the ties between itself and the APCE and thus provided various incentives to the public in order to meet its social responsibility objective. The Group offered sponsorships to various institutions and also the issuance of awards to performing entities in the society. For instance, in the year 2009, the Group issued an award to the CRA association. This was a French initiative, and it was deemed to encourage the various investors in catapulting the resources they have.
Strategies were deployed in order to curb the 2011 challenges.
The BNP Paribas Group experienced considerable challenges during the years 2009 and 2010. The stiff competition from various upcoming banks worldwide had adverse effects on investment and also the client outlay in the long run. The Group’s financial implications were at bay as various individuals and groups had to open up financial institutions in order to attract more investors.
The Group also faced a financial constraint due to the economic conditions experienced by the whole economy. This was due to the effects left by the economic recession that faced the whole continent. Most financial institutions collapsed while others experienced tough financial constraints which led them to change the mode of their operations. The managerial instinct and its competitiveness enabled the Group to sail through these dire effects of the recession. This enabled the Group to make a profit despite the conditions prevailing. Following these economic conditions and the financial constraint facing the economy at large, various implementations have been put in place in order to curb such situations in the future. There has been advancement in the technological, and various financial instruments have been put in place in order to analyze the various economic trends that are to be followed. Many financial institutions have been established in various geographical regions in order to provide enough funding when the need arises.
The BNP Paribas Group has taken major strategies in the implementation of various policies among them are the Investment strategy, innovation, and economic research in order to come up with an efficient way of dealing with the operations for 2011.
The BNP Paribas Group observed that the financial markets faced varying problems in the year 2010. The main difficulties included the modest growth of the US economy which was more of quantitative easing than qualitative one, the peripheral countries in the eurozone faced debt crisis, and finally the over-reliance of the western economies on the government support to the extent that they could not be able to get along without their support; this condition was realized by the banking system upon the economic recession which sent most of the banks packing. Despite all these inadequacies, most of the asset classes still produce positive results, which in turn, end to reducing their volatility in the financial markets. This situation is perceived to be abnormal but in essence, the results produced by the economy are preferably normal
Concerning 2011, the various investors in the whole world, more so in the Western economies, are faced with a dilemma. The conditions for risk assets are still considerably constructive as the economies are experiencing rather gradual growth in the economy, this means that the corporate earnings will keep rising, and the financial support offered by the Central banks to the economy will enable the financial markets to prosper. This will be done by the government, through Central Banks, injecting the finances into the financial economy.
These conditions provided seem unrealizable if the government with the help of the Central bank comes into full support of the banking systems and the economy at large. Furthermore, it is not an effortless task for any business operations to keep on tranquil when, on the other hand, the business debts are rising swiftly and speculate that the various monetary policies deployed by the Central Bank will have to normalize everything. Investors will, therefore, be trapped in between the panorama of the dominant markets; in which their basics are almost relatively buoyant and those markets which endear to sharp corrections upon prompted by the structural risks in hand. This may lead to a disturbing threat in the long run.
Since the BNP Paribas Group has realized that these risks cannot pose threats in the short run, the Group has strategies in the investment of these assets, which are risky, for the whole of 2011. The Group will thus focus on only the sort cash and the long assets in the entire period of 2011 as they have been practicing in the current year. Prior to the consolidation of the November (third-quarter financial statements reporting), the Group has reduced its operations in the developed equities and has moved from the negative position to neutral. This does not prevent the Group from being observant of the emerging equities. In the bond market, the impartial position taken on the government securities denotes a more tactical weight posed on the US Treasuries; mainly as an effect of QE and the less weight subjected to the German bonds. The Group focuses on the reduction of holdings in the investment grading to neutral and, therefore, reducing their high-yield debt by a considerable margin. They have also recommended much longer domination in the dollar from the emerging external sovereign debt. On the side of the commodities, the Group focuses entirely on investment in base metals and crude oil and has done away with gold involvement.
Treasurer, CFO and General Manager should deploy innovation strategy. The changing in the market environment due to the advancement in the technological sector has proofed quite inherent for the BNP Paribas Group. This has enabled the various firms and companies to monitor the social networks and changes in the development, as this is the sure way of either increasing or decreasing the company’s future profit yield. The innovation of the BNP Paribas Group enables it to be competitive and also differentiate itself from the other business firms. This will go along the way in protecting the profit margin of the Group (Shim).
The economic research strategy, employed in 2011 by the BNP Paribas Group, will enable them to analyze the market trends and also be able to get acquainted with the changing economies. In essence, the future trend of the industry performance will be easily speculated, and the utmost precautions or developments undertaken in order to meet the Groups’ strategic goal.
References
Maness, Terry, and Henderson James. Financial Analysis and Forecasting: a software system. New York: Prentice-Hall, 1992.
Shim, Jae, and Siegel, Joel. Handbook of Financial Analysis, Forecasting and Modeling. New York: CCH, 2006.