BNP Accelerates Capital Plan, Launches €1.15B Buyback to Boost CET1, Shareholder Returns

BNP Paribas SA announced a new €1.15 billion share buyback program and raised its capital strength target in response to a recent decline in its stock price. The French lender plans to increase its Common Equity Tier 1 (CET1) ratio to 13% by 2027, a year earlier than previously planned, to strengthen its capital position according to Bloomberg. CEO Jean-Laurent Bonnafe emphasized the bank's commitment to enhancing profitability while maintaining a disciplined distribution policy for shareholders.

The decision comes after a series of setbacks, including a third-quarter hit from bad debt and a costly U.S. court ruling that raised concerns about a potential settlement. These factors contributed to a 20% drop in BNP's shares from their August peak according to Bloomberg.

BNP Paribas' share price has lagged behind the broader European banking sector, with investors questioning its ability to match the profitability of rivals. The bank's shares have gained about 13% this year but remain behind the 47.8% rise in the European banking index according to Yahoo Finance. Deutsche Bank recently downgraded BNP to "hold" from "buy," citing uncertainty over its Sudan-related litigation and the potential impact on its capital buffer according to Investing.com.

Analysts have noted that each €1 billion in fines related to the litigation could reduce BNP's CET1 ratio by about 13 basis points, highlighting the sensitivity of its capital position to legal risks according to Investing.com. The bank's current CET1 buffer of roughly 200 basis points is significantly smaller than that of its peers, making it more vulnerable to unexpected losses according to Investing.com.

Strategic Adjustments and Future Plans

BNP's move to accelerate its capital plan reflects its broader strategy to boost profitability and return value to shareholders. The bank has been disposing of non-strategic assets more quickly and expects moderate growth in risk-weighted assets of around 2% annually. These efforts are expected to support the bank's target of a 13% return on tangible equity by 2028.

The buyback program, which has received regulatory approval, is set to launch before the end of November. It will return a portion of 2025 earnings to shareholders ahead of anticipated tax changes in France, which may raise the tax rate on share buybacks to 33% according to Bloomberg. Bonnafe stated that the proportion of capital above the 13% CET1 target to be returned to shareholders will be determined annually.

The bank's revised capital strategy and cost-cutting initiatives are designed to position it for long-term stability amid a challenging regulatory and economic environment. The details of its 2027–2030 strategic plan will be unveiled in early 2027, offering further clarity on its future direction.

Risks and Challenges Ahead

While BNP Paribas has taken steps to strengthen its capital and profitability, it remains exposed to several risks. The ongoing litigation in the U.S. related to its activities in Sudan could lead to significant financial penalties, affecting its capital buffer and CET1 ratio according to Investing.com. The bank's relatively low CET1 buffer compared to peers increases its vulnerability to unexpected losses.

Moreover, the regulatory environment remains uncertain, with the potential tax changes in France adding complexity to BNP's capital management strategy. The bank's ability to maintain its profitability targets will depend on its success in managing costs and controlling credit losses, particularly in the context of a potential economic slowdown.

Investors will be closely watching how BNP navigates these challenges, as well as the progress of its strategic initiatives. The bank's performance in the coming quarters will be a key indicator of its ability to achieve its long-term goals and restore confidence in its stock.