As stocks are roiled by the market rout, bankers at BNP Paribas might want to cash in quickly. The French bank's share price is down nearly 3% today to €62.8 and may yet fall further still. Were it to fall below €51.20, BNP's senior staff would lose a chunk of deferred bonuses issued in 2010, worth €9m at the current share price.
The deferred bonuses, which take the form of stock options, are declared in documents accompanying today's release of BNP's full year results for 2017. Issued eight years ago with an exercise price of €51.20, they expire on March 3rd. Around 814k of the 2.4m options initially granted are still outstanding, suggesting holders were hoping for an increase in BNP's share price which may no longer be forthcoming.
Today's releases give little indication of the total size of the bonus pool at BNP's corporate and investment bank for 2017. However, BNP states that the value of its group-wide deferred compensation plan for this year will be €345m, up only slightly on the €327m it allocated to deferred compensation last year. Unless BNP is planning to hike cash bonuses, it therefore looks like the bank's bonus pool will be flat.
If so, this will be despite a 15% year-on-year increase in the pre-tax corporate income at BNP's corporate and investment bank in 2017. It will also be despite a very handsome pre-tax return on equity of 16% in the CIB. - If it wanted to pay more, BNP probably could, but it doesn't. This is why its corporate and investment bank had a cost income ratio of 70% for 2017 while Deutsche's was 90%+.
Nonetheless, there are signs that all is not great at the French bank. Under its 2020 development plan, BNP intends to achieve compound annual revenue growth of 4.5% at its CIB over the three year period from 2017. Despite onboarding new clients (while most other banks have been trimming client lists) and investing in new talent, revenues at BNP's CIB grew by only 2.1% last year thanks to "unfavourable exchange rate effects."
The double digit percentage growth in profitability at BNP's CIB last year was therefore mostly the result of cost-cutting. This doesn't bode well for compensation. It also means that BNP's bankers may want to sell those 2010 options at a profit while they still can.
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