* Net income down 45 percent in lacklustre economy
* Analysts had expected bigger drop in profits
* Retail better than expected, investment bank weaker -
* ECB rate cut a "positive" sign - CEO
(Adds share price, Tier 1 sector comparison, analyst comment)
By Lionel Laurent and Matthias Blamont
PARIS, May 3 (Reuters) - French bank BNP Paribas
pledged to keep cutting costs and staff to cope with a flagging
European economy after reporting a 45 percent drop in
first-quarter net income on Friday.
France's biggest listed bank, which is heavily exposed to
the recession-hit euro zone, is in the early stages of a plan to
save 2 billion euros ($2.6 billion) a year by 2015. The plan
will cost 1.5 billion euros to implement.
"We are improving the efficiency of the retail business in
France, tackling the cost base," BNP Chief Executive
Jean-Laurent Bonnafe told Reuters Insider television.
Shares of BNP rose 1.5 percent, to 43.51 euros,
outperforming the STOXX 600 Europe banks index, which
was up 0.2 percent.
The first-quarter profit drop was not as bad as analysts
feared, thanks to cost control and a better-than-forecast
performance in retail loans.
"The company seems to us to be heavily undervalued despite
its very solid financial structure, its relative resilience in a
depressed European environment and its growth potential in Asia
and the U.S.," CM-CIC analyst Pierre Chedeville said in a note.
Other European lenders such as Germany's Deutsche Bank
and Switzerland's UBS are also in a push to
cut costs and boost balance sheets in the face of tough
post-crisis financial markets and a regulatory crackdown on
Although BNP is ahead of the pack with a Tier 1 capital
ratio of 10.0 percent under tougher Basel III rules, compared
with 8.6 percent at Credit Suisse and 8.9 percent at
JPMorgan Chase, the bank is under pressure to show it
can improve profits and grow outside the troubled euro zone.
BNP said it had begun offering "early-retirement" plans for
staff at its Belgian and Italian subsidiaries, without giving
The bank is also preparing to launch a wholly online
European bank to try to offset slowing growth at its retail
branches. Union sources have said the bank is targeting 500,000
customers over five years.
BNP said its first-quarter earnings had fallen 44.8 percent
to 1.58 billion euros ($2.1 billion) on the back of weakness in
its domestic market and the rocky reaction of financial markets
to the EU's bailout of Cyprus.
This was not as bad as analysts' expectations for 1.53
billion euros in net profit, according to an average of analyst
forecasts compiled by Thomson Reuters I/B/E/S.
Revenues from capital-markets trading and sales, which are
heavily geared towards bonds, other fixed-income products and
currencies, fell 25.2 percent year-on-year. Retail-banking
revenues and profits were broadly flat across the group.
Citing a better-than-expected performance in retail banking
and BNP's solid capital and liquidity cushion, Citigroup analyst
Kinner Lakhani said shareholders were on track to receive higher
"We continue to believe that with solid capital generation
and focused growth, BNP Paribas confirms it is one of the
best-placed banks in our universe to increase its dividend
policy over time," he said in a research note.
Praising the European Central Bank's decision on Thursday to
cut interest rates, CEO Bonnafe said it would spur growth
without being a cure-all.
"(The rate cut) is a positive sign. It will not be an answer
to all issues but it will be a good help to the economy," he
BNP could also end up being a buyer of the state of
Luxembourg's 34-percent stake in its BGL subsidiary, added
Bonnafe, without giving further details.
Luxembourg, which took a stake in the unit as part of BNP's
takeover of collapsed Benelux bank Fortis in 2008, said last
month it wanted to sell the stake.
($1 = 0.7649 euros)
(Editing by Edwina Gibbs and Mark Potter)