BNP Paribas, France's biggest listed bank, beat first-quarter forecasts, driven by strong retail growth and resilient investment banking that bolstered investor confidence and set a high bar for rivals.
BNP's European retail footprint helped offset weaker capital market revenue amid market jitters over euro zone debt levels, Arab world unrest and the Japanese earthquake.
I am still in a cautiously optimistic mood ... I expect this level of sustained activity to continue over the next quarters, chief executive Baudouin Prot told Reuters Insider television on Wednesday.
BNP shares were up 3.2 percent at 0855 GMT, the top gainer in the STOXX Europe 600 bank index and lifting smaller domestic rivals Credit Agricole and Societe Generale which report results later this month.
The results have everything, a rebound in volumes, a drop in provisions, good capital generation ... BNP has set the bar high, said Marc Renaud, fund manager at Mandarine Gestion, with around 1 billion euros under management.
French bank stocks have traded at a discount to peers because of worries over the impact of tougher incoming capital requirements and exposure to eurozone debt jitters.
Prot told Insider he was confident the bank would pass this year's Europe-wide stress tests and ruled out any need to raise capital to meet tougher Basel III rules.
He also said there were no plans to grow via acquisitions.
BNP's quarterly net income rose 14.6 percent to 2.62 billion euros ($3.9 billion), compared with a forecast for 2.25 billion in a Reuters poll. Revenue grew 1.3 percent to 11.7 billion euros, also higher than expected.
Retail banking was buoyed by loan growth across western Europe and appetite for mortgages in France.
Provisions against loan losses tumbled almost a third across the group, helping BNP's investment bank profit better resist a 14.5 percent drop in capital markets revenue.
European peers including Barclays, Credit Suisse and UBS, saw investment banking profit fall 15-30 percent in the first quarter. BNP's unit reported a 5 percent fall in pretax earnings.
BNP, which is relying on its own profit power to meet incoming Basel III capital rules, should see significantly lower provisions for 2011 compared with 2010, CEO Prot told Insider.
The group's core Tier 1 capital ratio, a key measure of financial strength, rose to 9.5 percent at end-March, from 8.3 percent a year ago.
First-quarter return on equity was 15.1 percent on an annualized basis, which would put BNP on track to hit its target for an annual ROE of 15 percent.
GREECE IMPACT LIMITED
Commenting on the size and potential impact of Portugal's rescue package, Prot told journalists the plan was in line with expectations and western European countries, including Germany and France, were still showing strong economic growth.
(Portugal's plan) shows significant support, he said.
BNP's total sovereign exposure to Portugal, Ireland and Greece stood at 6.7 billion euros at end-March. Even a possible debt restructuring by crisis-wracked Greece would only have a limited impact on the bank, Prot told Insider.
We would be impacted ... in a limited, not marginal, but limited way, he said.
Unlike smaller French rivals Credit Agricole and Societe Generale, BNP does not own a bank in Greece that would be exposed to broader economic troubles.
However, BNP did see pretax profit virtually wiped out at its emerging-market retail division, hurt by charges on North African unrest and shrinking revenue in Ukraine.
BNP has deconsolidated its holdings in Libya following the military campaign and is still mulling whether to return to Ivory Coast after former president Laurent Gbagbo's ouster.
BNP shares have risen 15 percent this year, underperforming domestic rivals but outperforming the broader STOXX Europe 600 index as less risk-averse investors return to banks that bore the brunt of euro zone fears.
(Editing by James Regan and Dan Lalor)
($1 = 0.6726 euro)