BNP Paribas cuts debt exposure as quarterly profits fall

Leading French bank BNP Paribas said on Thursday it was writing down 60 percent of its Greek debt, reducing its exposure to other European sovereigns and cutting jobs to tackle the effects of the debt crisis. The move came as the Greek debt crisis hit the bank's third-quarter results, with net income down 71.6 percent from the third quarter of 2010 to 541 million euros ($746 million). The bank said it had set aside a provision of 60 percent of the full amount of Greek sovereign debt it holds, equivalent to 2.25 billion euros. It noted that by excluding the Greek debt provision, net income would have been 1.95 billion euros in the third quarter, up 2.4 percent. Highlighting growing fears over other European bonds, the bank also said it had lowered its total exposure to the public debts of Italy, Spain, Greece, Portugal and Ireland from 28.9 billion euros at the end of June to 16.5 billion euros at the end of October. The move came at a cost of 362 million euros, but traders appeared to appreciate BNP Paribas's efforts and at 1045 GMT its shares were up 5.12 percent on the CAC 40, at 31.20 euros. Traders on the eurozone bond market have said in recent months that the European Central Bank has been buying bonds from financial institutions, in line with its known policy. This is ostensibly to hold down borrowing rates for weak eurozone countries but indirectly exchanges suspect debt on balance sheets for cash. Bank chief Baudouin Prot warned that the group was not prepared to accept any further voluntary agreement with eurozone governments to accept a 50-percent cut in the value of Greek debt under official rescue schemes, saying the 50-percent debt relief offered to Greece last Thursday was a "final offer". He told BFM Business: "This is the last time we will participate in a voluntary exercise in regards to Greece." He said: "There is a time for everything. The time for voluntary action is over." He also said: "The offer that is on the table of the voluntary renunciation of half the Greek debt is the final offer that BNP Paribas will make." Prot said: "We are not assuming there will be a full default, but we will face that if needed. It would be entirely manageable for BNP Paribas." There is renewed concern on financial markets that Greece might default in an unplanned way which could reduce severely or totally the value of some debt instruments. The bank also announced plans to reduce fixed costs in its finance and investment arms by 450 million euros, or 10 percent of their costs. The scheme will result in the loss of several hundred jobs, with more details to be announced in mid-November, the bank said. Such job cuts "are taking place in most investment banks around the world," Prot said, adding that "at BNP Paribas, which has not made significant hires for two years, they will be more limited." Pierre Chedeville, an analyst at CM-CIC Securities, hailed the bank's "forced march adjustment" and said its results were positive outside of exceptional circumstances. Greece stunned investors and its European partners this week by announcing a referendum on a deal reached last month to tackle its debt crisis. Under the deal banks would write down 50 percent of the debt owed by Greece, Athens introduce further austerity measures, banks boost their capitalisation and the European bailout fund strengthened. Prot said the write down was "a very important sacrifice, very important assistance to Greece. And I believe Greece would very much regret rejecting this offer." The bank said it would raise its core capital ratio to 9.1 percent of overall assets by the end of June, above the 9.0 percent required under the European deal. Prot refused to comment on the level of dividends to be paid in 2011, but said "nothing indicates" there will be a reduction in payments to shareholders. In Austria, insurer UNIQA said it had written down the value of its Greek bonds to market value, in a sign of growing pessimism among institutional investors about the prospects of a rescue. UNIQA said it has slashed the value of its portfolio of Greek sovereign debt to 35 percent of its nominal value of 480 million euros ($660 million), far below the 50-percent "haircut" agreed at a European Union summit last week. It said the move was because the details of the EU deal have not yet been worked out, and because of the "uncertainty" caused by Greek Prime Minister George Papandreou's announcement this week of a referendum.