France's biggest listed bank BNP Paribas reported a 72 percent slide in third-quarter earnings on Thursday after it booked a bigger-than-expected 2 billion-euro ($2.76 billion) charge on Greek debt and sold billions of euros' worth of government bonds.
The charge equated to 60 percent of BNP's sovereign exposure to the crisis-wracked Greek economy and reflected last month's pledge from private-sector creditors to write off a bigger chunk of their Greek debt, the bank said in a statement, though it added the plan was still "shrouded by uncertainty."
Describing the bank's Greek provisioning as "adequate" for the time being, BNP Chief Executive Baudouin Prot nonetheless did not rule out a Greek sovereign debt default, telling Reuters Insider TV it would be "unpleasant" but manageable.
"A (Greek) default certainly would be manageable. Unpleasant, but manageable," he said. "I think that (BNP's provisioning) is adequate...We will see as things go."
BNP's big balance sheet, its dependence on wholesale funding markets and its overwhelming European exposure make it among the most vulnerable to the eurozone sovereign debt crisis, which is threatening to flare up with a looming referendum in Greece on the latest euro rescue package.
Following a sharp share-price drop in the summer, the bank has announced sweeping asset sales that will be accompanied by job cuts, mainly at its corporate and investment bank, BNP's Prot said, though he would not comment on likely numbers.
"We will have some staff reductions as we implement the deleveraging plan," he said. "We are working the numbers and we will make announcements to the different platforms in mid-November."
The impact of sales and the cutback of U.S.-dollar funding needs -- down by $20 billion in the third quarter and due to go down by the same amount in the fourth -- will lead to one-off losses of 1.2 billion euros, BNP said. On an annual recurring basis, gross operating income will fall by 750 million.
EUROZONE DEBT SLASHED
Third-quarter net profit at BNP fell by 71.6 percent, to 541 million euros, worse than the 991.9 million consensus mean estimate of nine analysts polled by Reuters.
Revenues fell 7.6 percent, to 10.0 billion euros, also worse than the analysts' mean estimate of 10.48 billion.
In addition to taking a Greece charge of 2.26 billion euros, BNP slashed its exposure to eurozone sovereign debt by 20.7 percent in the third quarter, to 58.6 billion euros, leading to extra losses.
The bank cut its banking-book exposure to Greek sovereign debt to 1.6 billion from 3.5 billion at end-June; Spanish holdings fell to 0.5 billion from 2.7 billion; exposure to Italy slid to 12.2 billion from 20.5 billion.
Asked whether the bank would continue to offload sovereign bonds, BNP's Prot told Reuters Insider: "No...We are going to stand where we are."
BNP's quarterly numbers were peppered with other one-offs, including a revenue gain of 786 million euros on widening spreads on BNP's own debt and a 299 million-euro writedown on its stake in Europe's No. 2 insurer AXA .
The results otherwise bore the scars of a volatile quarter, with corporate and investment bank revenues down 39.8 percent, to 1.75 billion euros. However, BNP's strong exposure to retail banking benefited from revenue and credit growth in Western European markets and others like Turkey.
The bank's core Tier 1 ratio, a closely watched metric of lenders' loss-absorbing capital, stood at 9.6 percent at end-September, unchanged from end-June.
French banks including BNP have promised to boost their capital levels by 8.8 billion euros without government help to reach tougher targets set by European regulators for mid-2012.
Although bonuses will likely come down in line with capital-markets profits, BNP could be at 9.1 percent core Tier 1 in mid-2012 without touching its dividend, CEO Prot said.
"Without taking any retained earnings and including (sovereign) impact...We will be comfortably above 9 percent," he said.
(Editing by Christian Plumb)