The gradual opening up of the French economy as the COVID-19 pandemic eases in many countries is a source of hope for banks following a promising first quarter.
The first quarter of 2021 gave France's largest banks some cause for hope. After the unprecedented turbulence of 2020, BNP Paribas SA, Crédit Agricole SA, Groupe BPCE and Société Générale SA all saw a strong rebound in business activity in the first three months of the year.
Revenues at all four banks easily surpassed those in a 2020 first quarter that was marred by the onset of the COVID-19 pandemic, according to S&P Global Market Intelligence data. More significantly, revenues at three of the four banks exceeded those recorded in the first quarter of 2019, with only BPCE missing out on beating its first-quarter 2019 revenue by around €50 million.
Expectations exceeded
The revenue performance of the banks was a surprise to analysts. BNP Paribas exceeded analysts' first-quarter revenue consensus estimate by 5.50%, S&P Global Market Intelligence data showed. Crédit Agricole's first-quarter revenue also beat analyst expectations by 5.50%, while Société Générale beat its consensus estimate by 5.36%. Analyst estimates for Groupe BPCE, which is not a publicly listed company, are not available.
"We have seen a revenue jump [in the first quarter at the largest French banks], mainly driven by [corporate and investment/institutional banking] and equities," Arnaud Journois, vice president at rating agency DBRS Morningstar, said in an interview. "They recovered from a very complicated situation in the first quarter last year."
French banks had become leaders in certain types of derivatives, including dividend futures, that lost money at the height of the coronavirus crisis.
But BNP Paribas' corporate and institutional banking division enjoyed a record quarter in the 2021 first quarter, and its strongest since the 2011 first quarter, as it brought in €3.67 billion. The division's first-quarter revenue was up 24.28% from the same period in 2020, and 22% from the 2019 first quarter.
The unit saw "very strong momentum across all its businesses," BNP Paribas CFO Lars Machenil said during its first-quarter earnings call, with "robust activity" in its global markets business and a record quarter from equity and prime services.
Société Générale's equivalent division — global banking and investor solutions — saw a similarly strong bounceback from the first-quarter 2020 slump. First-quarter revenues at the unit grew 54.21% year over year to €2.51 billion. The result also surpassed first-quarter 2019 global banking and investor solutions revenues by 12.06%.
The division's first-quarter growth was "the most impressive" for SocGen, Deputy General Manager and Head of Finance William Kadouch-Chassaing said during the bank's earnings call. The bank's equities and fixed-income and currencies businesses performed particularly well. SocGen's equities unit, which brought in €851 million in the quarter, had its strongest quarter since the first quarter of 2015, "benefiting across the board from favorable tailwinds in the market," said Kadouch-Chassaing.
It was a similar story for Crédit Agricole's corporate and investment bank. Its underlying revenue in the period was up 18.99% from the first three months of 2020, and up 13.64% from the first quarter of 2019.
In terms of revenues, the first quarter was the second-best quarter in five years for Crédit Agricole CIB, Deputy General Manager and CFO Jérôme Grivet said during the bank's first-quarter earnings call. The CIB result was driven by strong performance in both capital market and financing activities, Grivet added.
Groupe BPCE's corporate and investment banking division enjoyed its strongest first-quarter revenue performance since 2017. The unit brought in €940 million, up 28.24% from the first quarter of 2020 and 17.5% from the first three months of 2019.
'Constructive view' for 2021
The strength of the four banks' performance is encouraging analysts to adopt a more positive outlook for the coming quarters.
"Having been able to beat consensus estimates as well as rating agencies' expectations, and having reestablished a positive jaws effect, the basis [is set] for a constructive view for the rest of 2021," Florian Hillenbrand, credit analyst at UniCredit Bank, said in a May 21 note.
The tone among the banks during their first-quarter earnings calls was one of cautious optimism. Its revenue performance means "BNP Paribas is very well positioned indeed to carry on stepping up its market share via new clients, increased wallet share and more servicing, [and] seizing more than its fair share of opportunities arising from the rebound in activity in the second half of this year," said Machenil.
While Société Générale CEO Frédéric Oudéa said the "good start to the year" would "help us and, going forward, confirm that 2021 will be a year of strong rebound" for the bank, he sounded a note of caution about what lay ahead. "There's probably a touch of conservatism, but we are realistic," said Oudéa. "We remain a little bit prudent, so we prefer to be on that side."
Still, given the grim forecasts that defined much of 2020's earnings calls, some analysts are hopeful of a positive picture in the coming quarters.
"The morale is better than six months ago. I'm also optimistic," said DBRS Morningstar's Journois. "We should see overall better profitability this year."