DealBook: BNP Paribas Writes Down Greek Debt as Earnings Slump

Chris Ratcliffe/Bloomberg NewsA BNP Paribas branch in Paris.

PARIS — BNP Paribas, the largest French bank, announced a sharp decline in third-quarter profit on Thursday and said it was writing off 60 percent of the value of its holdings of Greek debt, a belated acknowledgement that the loans were largely unrecoverable.

The bank, based in Paris, said it was setting aside about 2.1 billion euros ($2.9 billion) of the value of its Greek sovereign debt, while also writing down about 116 million euros of exposure to Greek corporate bonds.

The bank said it had also moved to address its exposure to the debt of other troubled governments in the euro zone, selling 1.9 billion euros worth of Greek sovereign debt, 8.2 billion euros of Italian debt and 2.5 billion euros of Spanish debt.

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“The new Greek debt restructuring plan has adversely impacted this quarter’s net income, which, otherwise, is in line with the performances of previous quarters,” Baudouin Prot, the chief executive, said in a statement.

He said during a conference call that the bank’s exposure to Greece was now small enough that a default would be manageable.

Under a July 21 aid package between Greece and the European Union, banks had been prepared to write down their Greek sovereign debt holdings by 21 percent. But that deal, always seen in the market as insufficient, was never implemented.

Many large banks went on to write down half or more of their exposure. When a new aid deal for Greece was announced on Oct. 27, its demand for a 50 percent “haircut” on the loans merely codified what a number of banks had already put into practice.

Some French banks, including BNP Paribas and Société Générale, had come under criticism for not moving more aggressively to mark down their loans, and their stock prices suffered as a result.

Shares of BNP Paribas rose 8.9 percent in Paris on Thursday afternoon, while Société Générale, which is to report results on Tuesday, was 5.7 percent higher.

BNP Paribas also announced third-quarter net profit of 541 million euros, down 72 percent from the period a year earlier. If results were adjusted to exclude the Greek write-down, the bank would have had a net profit of almost 2 billion euros, up more than 2 percent. Revenue, at 10 billion euros, was down 7.6 percent from a year earlier.

BNP’s investment banking business was hurt by “very distressed markets marked by plummeting equity markets, stepped up concerns over the sovereign debt crisis in a number of European countries, limited liquidity and extremely high volatility.” Revenue fell to 1.7 billion euros in the unit, down almost 40 percent from the period a year earlier,

The bank said its Tier 1 capital ratio, a measure of financial strength, rose to 11.9 percent from 11.4 percent. Banks in the euro zone are being required to raise their ratio to 9 percent to protect against exposure to the debt of countries at risk.

Like other French banks, BNP Paribas is cutting businesses requiring dollar-based funding to raise its capital ratios for compliance with new rules. It said it had cut its dollar funding by $20 billion in the third quarter and would cut another $20 billion in the fourth quarter, leaving it with a remaining target of $20 billion for 2012.

“The plan to reduce funding needs in dollars and the group’s placement capacities helped it minimize the impact of the crisis that occurred in the monetary and financial markets this summer,” Mr. Prot said in the statement.

Compliance with new capital rules will nonetheless come at a cost. BNP said adjustments would cause gross operating income to decline by 750 million euros and result in an additional 1.2 billion euros in costs and losses.

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