BNP Paribas CFO Lars Machenil Talks Equity Trading
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Bloomberg Audio Studios. Podcasts, radio, news. Let's go to Paris now in terms of the earnings story. We are going to talk about BNP Paribas earnings and we're joined by the CFO, Lars Machinil. Lars, very good morning to you. Let's get straight to the positives here. First quarter equity and prime services revenue up by 42% year on year. That's much higher than the estimates. That's much higher than the average achieved on Wall Street. But of course, the question is, how sustainable is that kind of performance?

Yeah, good morning. Indeed, if I take it just a step back, if you look at the total bank, we clocked in $3 billion of net profit and indeed with a record quarter for CIB. If you look at CIB, in particular, we have three divisions, right? So markets, global banking, security services. And they've all been performing well. And if you zoom in on your question, if we talk about global markets, do remember that we have been

completely changing our setup. We have the full width of products and of services, and therefore we intrinsically grow by taking market share. Again, this quarter, there was a very strong additional volatility, so we stepped up even in those results, and we have a record quarter. But nevertheless, I mean, we are on a strong growth, intrinsic growth, which was somewhat boosted this quarter given the exceptional volatility in Q1.

OK, so the exceptional volatility of course helped, but you sense you're taking market share and so maybe some sense of sustainability to strong performance. What about the cost side of the business then, Lars? Because at the net level, the numbers look almost in line with expectation, but some people are citing that cost base and just I'm wondering what it is that's going up year after year that you're having to pay out for.

Listen, if you look, if I take it back again at the BNP Paribas level, indeed if you look at it, you see costs going up for like 4%. So this is a number that is kind of high. But then if you look through it, there are elements which is basically the Forex. The Forex lifted it for half a basis point. Then there is also inflation that lifted it for half a basis point. And then also the variable costs that basically come with the strong results of the first quarter.

So if you look at it intrinsically, cost evolution is 2.5% in the first quarter and that is what we aim for for the rest of the year. And that 2.5% growth is marginal cost. So it comes with cost to accompany the revenues. So we feel intrinsically that it is under control. There are some exceptional elements, call it noise, in the first quarter, but we stick to, for the rest of the year, to 2.5% marginal cost growth.

Lars, good morning. It's Guy. Can I just take you back to the markets division? Is the markets division running at maximum risk at the moment?

Actually, we consider it runs at low risk. What I mean by that, when we talk about being able to step up market share, it basically means that we keep on doing exactly the same underwriting, the same kind of business that we do, but we take higher market shares. So if you look at the evolution of our top line in CIB, and if you look at the metric, whatever it is, but take the VAR, which is a metric for the risk that you take, the VAR is basically stable, whereas our top line grows. So we really stick to

to underwriting the same kind of business, but different positioning we take market shares. If volatility comes down, could you take more risk?

Listen, we are really confident that the activity that we do, we consider it flow. And that flow basically means companies and institutions, they typically need currencies, they need forex, whatever it is. So there is a good play. And if you look at what typically the outlook says, this business grows on a year-to-year basis, and we will continue to grow and to take market share. Again, we do this with the same cost of risk.

Listen, we call our division CIB, Corporate and Institutional Banking. We don't call it Investment Banking. So we stick to our underwriting principles. If volatility comes down,

and you're making less money on that side, does deal-making go up? If we go into a more certain environment, will there be more deal-making and less money coming out of the markets division? Do those two compensate for each other in a more certain environment? That is typically what we do. What we stand for is we have diversified but complementary kind of activities.

It's true, like if you look at our results today, the market's activities were strong given the increased volatility in the quarter. However, if you then look at our global banking activities and then you look at the demand for kind of mergers and whatever, that was lower given the uncertainty. So when that uncertainty will taper off, yes indeed the market's activities will probably normalize. However, there is a likelihood that the demand for whatever it is, investment banking, M&A activities will step up.

And that's, I cannot say it's every quarter like that, but that's if you look at the trend of the last couple of years, that's how it has been. Good morning Lars, it's Lizzie here. Can I ask you broadly how you see this trade war and the general geopolitical uncertainty impacting economic growth and inflation as we go ahead?

Yeah, there's several things to that. I mean, it's probably a tad too early to say something. If you look at our first quarter results, you don't see anything. Going forward, I basically, for the moment, I don't see many things moving. Why? On one hand, yes, with whatever the tariffs will come, some transatlantic volumes of trade will go down. However, if you look at Europe, which is putting all sales to reinvest,

Look at what Europe is saying. Look at what Germany is saying. Look at what several countries are saying. And so we anticipate that those investments will basically compensate.

Of course, tariffs will come immediately, whereas those investments will take a bit of time to come. But normally that should happen. I'll give you another thing that I look at on your cost of risk. As a front-leading indicator for me to see if companies run into trouble, I basically look at their liquidity. So if I look at CIB, if I take the corporates, if the corporates all of a sudden come rushing in with liquidity demands, that is kind of a hint that something is going. I don't see that.

At the same time, if you go to the hedge funds, if the hedge funds all of a sudden have problems putting up the initial margins, that's also an indicator. I don't see that. So I don't see the corporates coming for funding needs, and I don't see the funds having issues with putting the initial margins up. So from that point of view, what I'm just saying that things could level out at this stage with all the indicators I have, that's what I see.

But I mean, you are especially exposed among the European banks to this trade war. You've got a high proportion of loans and advances to manufacturing than most of your rivals. Does part of that first quarter provision already include those risks? Are you going to have to increase it if the trade war kind of intensifies between the US and Europe?

Listen, let me clarify. If you look at our exposure and you look at the sectors and then you take the sectors that could be impacted by those tariffs, for us that represents "only" 10% of our exposure. So from that point of view, I feel comfortable that Europe has compensating effects and then for us, we are so diversified that we are not exposed in any material way to that kind of trading related activities.

Lars, great to catch up. Always a pleasure. Thanks for updating us. BNP's CFO, Lars Machinil, BNP Paribas.

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