So BNP Paribas had some disappointing news today: Its net fourth-quarter profit only just barely doubled, as opposed to increasing two-and-one-third times, as was expected. This has some investors fleeing the French bank’s shares, which plunged almost 5% on the news. But those people dumping BNP are forgetting a few things, like who’s president and that the European Union is on the verge of collapse. When you take those things into account, BNP’s warm-milk plans for 10% RoE and increased dividends suddenly look downright spectacular.
This may sound uninspiring, but when European interest rates are going nowhere fast and regulation is still tightening, and where many big competitors still return less than 10%, it has value….
BNP has a history of fulfilling targets even in difficult times—the bank didn’t lay out its last three-year plan expecting to be hit by a $9 billion fine for busting U.S. sanctions. But hit the mark anyway, engendering investor trust.
BNP is trading at less than 70% of what its book value will be in each of the next three years if it grows net income as planned and pays out half of that to investors. That looks like too much of a discount considering that the bank set a target it shouldn’t miss.