BNP Paribas beats Q1 2017 estimates, CET1 ratio up to 11.6%

In the last week of May, BNP Paribas (OTC: BNPQY) agreed to pay $350 million as penalty to New York Department of Financial Services, a financial watchdog, in a case related to manipulation of currency rates in the Forex market.

The news triggered a sell off that resulted in the bank’s stock touch a low of $35.11.

However, considering the preventive measures taken by the bank to avoid a repeat of such an incident, provisions made to cover the fine, and impressive fiscal 2017 first-quarter results, we are bullish on the stock of BNP Paribas.

The Paris, France-based lender reported net income of €1.89 billion on revenues of €11.297 billion in the three months ended March 2017. In the same period last year, net income was €1.814 billion on revenues of €10.844 billion. On average, analysts anticipated earnings of €1.60 billion on revenues of €11.01 billion.

BNP Paribas

Operating income in Q1 2017 increased 5.1% to €2.59 billion, from €2.46 billion in the year-ago quarter. The operating income grew 14.3% on q-o-q basis.

The bank’s cost of risk decreased to €592 million in Q1 2017, from €757 million in Q1 2016. BNP Paribas stated that the cost of risk decreased mainly due to good risk management, and low interest environment.

Excluding charges, the return on equity was 10.4%, while the return on tangible equity was 12.3%. During the quarter, the bank’s net book value per share increased to €75.1.

At the end of March 2017, the fully loaded Basel III CET1 ratio was 11.6%, up 0.1% from the prior quarter. The liquidity coverage ratio stood at 125% as of March 2017.

Correspondingly, BNP Paribas’ liquidity reserve was €345 billion, up €40 billion from the earlier quarter. Notably, the reserve is more than enough to manage one year of wholesale funding.

BNP Paribas also clarified that it had made adequate provisions to cover the $350 million penalty imposed by the US regulators. Thus, considering the strong quarterly results and settlement of pending legal issues, fundamentally, the stock is expected to remain bullish.

The stock has crossed above its 50-day moving average as shown in the image below. Furthermore, the MACD indicator has also made a bullish crossover above the zero line. The price chart also indicates support for the stock at 35.70. On the upside, resistance exists at 37.30. Thus, we expect the stock to rise in the days ahead.

In order to gain from the analysis, we prefer to invest in a call option expiring on or around June 14th . Additionally, we would be looking for a strike price of about $35.50 in the equity market.

---