The French daily Liberation reported on Wednesday that BNP Paribas had allocated a billion euros for end of year executive bonuses - a charge the bank did not deny. BNP had previously been approved for a government bailout.
The France-based bank BNP Paribas, which became the largest deposit-holding bank in Europe when it took over Fortis of Belgium in May, published its second-quarter earnings reports on Tuesday. Careful inspection of the figures by journalists at the French daily Liberation revealed BNP had allocated a billion euros for bonuses in its financing and investment banking divisions, reported the paper later.
This comes on the heels of the release of earnings reports for the second quarter of the year which saw the group increase revenue by 6.6% over the same period in 2008. The FT has called BNP “one of Europe’s most resilient banks during the financial crisis.”
Though figures are still coming in for second quarter earnings, a number of major banking companies have also reported positive showings in the second quarter, such as HSBC, Barclays, and US bank Citigroup, JPMorgan Chase and Goldman Sachs Bank of America. The ever-troubled Societe Generale, however, continues to flounder, with its net profit falling 52 % from last year. Switzerland's UBS and Italian bank Unicredit also reported losses.
The bonus decision has raised eyebrows in the French press, coming just months after the French Ministry of Finance announced that the flailing BNP Paribas would receive 2.55 billion euros in rescue funds.
The story first ran in the French daily Liberation, after which BNP issued a statement saying that the information was largely accurate. However, they qualified that bonuses are decided at the end of the year, so the amount, while approximately correct, was nonetheless provisional. It also pointed out that the divisions that would be eligible for bonuses had 17,000 employees.
“We are one of the only banks in the world to observe the bonus guidelines set by the G20,” read the statement, referring to non-binding guidelines published by the European Commission in June. The guidelines say banks should be allowed to ask for a bonus to be returned if the good performance it was based on turns out to be a sham, a step experts say will be hard to do.
What were they thinking?
Dr. Geoffrey Wood, professor of economics at Cass Business School in London, pointed out that there maybe unseen factors at play that would justify BNP’s decision.
Wood said that condemning BNP for giving bonuses in the wake of a crisis might be hasty. “Bonuses are not always based on performance for that year. Some projects take years to complete, and they are paid at the end based on the achievement of the deals. They may be rewarding performance over time, predating the financial crisis.”
BNP Paribas has to date made no such justifications in the group's defence. Commenting on the BNP response to the Liberation article referring to guidelines on bonuses, Wood said, “That does sound a bit stupid,” adding that he expected the public would demand a better explanation in the near future.
Asked whether it was possible that a public outcry would force BNP to retract its bonuses, as was the case with American insurance giant AIG, Wood said, “It’s not out of the question that this could happen. There is the possibility that [BNP] has done something silly.”
Is this the light at the end of the tunnel?
According to Wood, the much-touted upbeat numbers may be “simply a consequence of accounting. If you a bank has debts and the debts go down in price, this is recorded as a profit.” In other words, the gains reported by banks are often simply less egregious losses.
He also said that troubles ending in the investment banking world do not signal the end of trouble in the retail banking world, because in the normal sequence of events, retail trends follow investment trends; they are not in tandem.
“When the economy slows down, the trading losses go first. Now what we’re seeing is that individual customers are default. We will see a large increase on people defaulting on credit cards debts,” Wood anticipated.
Along those lines, BNP Paribas on Tuesday said its French retail banking division had actually seen a 17.9% fall in pre-tax income.
Date created : 2009-08-05