UPDATE 2-BNP Paribas pledges cuts after profit fall
* Net income down 45 percent in lacklustre economy
* Analysts had expected bigger drop in profits
* Retail better than expected, investment bank weaker - analyst
* 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 risk.
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 more details.
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 dividend payouts.
"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 said.
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)
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