By Lionel Laurent and Matthias Blamont
PARIS (Reuters) - French bank BNP Paribas
The warning from France's biggest bank comes as the global banking industry faces mounting legal woes due to investigations into a string of alleged misdeeds, including fixing benchmark interest rates and manipulating foreign-exchange markets.
A big U.S. fine could have ramifications for BNP beyond the immediate financial hit, as the bank is targeting expansion in North America as a key plank of a new strategy to grow revenue and profits outside traditional European markets.
"There is uncertainty with respect to the amount and the nature of penalties the U.S. will impose," Chief Financial Officer Lars Machenil told Reuters Insider television. "It's not impossible that the fine is far in excess of the ($1.1 billion) provision."
His comments came after BNP posted a higher-than-expected 5.2 percent rise in first-quarter net income. Shares in the bank were down 3.5 percent at 53.97 euros by 0850 GMT (4.50 a.m. EDT), having fallen as low as 53.55 euros, not far from their lowest of the year so far. The European banking sector <.SX7P> was down 0.5 percent.
U.S. federal prosecutors are considering criminal charges against BNP for doing business with countries subject to U.S. sanctions, such as Iran, Sudan and Cuba, a person with knowledge of the matter has said.
Regulators may consider suspending the bank's ability to conduct dollar clearing in New York - the process by which transactions are quickly settled and cleared within the banking system - and are looking at possible penalties for individual employees, the person said.
BNP declined to comment. The bank has said it wants North America to account for 12 percent of revenue by 2016, up from 10 percent in 2013, and wants to improve cross-selling between its U.S. investment bank and retail bank unit BancWest.
OPERATIONAL SANCTION
"The risk is that some form of operational sanction may undermine the bank's ability to meet these targets," analyst Jean-Pierre Lambert at brokerage Keefe, Bruyette & Woods said.
"There does not seem to be a serious likelihood that BNP will lose its banking license outright, but there may be consequences for its current activities if its ability to clear U.S. dollar transactions is limited," Lambert said.
Asked if the fine could reach $2 billion or $3 billion, BNP's Machenil said: "There is nothing more to say."
Past U.S. settlements have ensnared rivals such as Standard Chartered
JPMorgan Chase
Meanwhile BNP's results showed the effects of its full takeover of Belgian subsidiary Fortis last year, which helped offset writedowns on assets exposed to the Ukraine crisis and rising loan losses in Italy.
The bank has a robust capital base relative to peers, with a core Tier 1 ratio of 10.6 percent at end-March. Machenil said BNP has "excess capital" but will not use this to buy back shares at their current valuation.
"Today we are (trading) somewhere around book value ... I don't think (buying back shares) is on the table," he said. "You're going to do share buybacks when your share price is substantially below book value."
These comments, coupled with the uncertainty over the Iran fine, undermined BNP's appeal to investors, analyst Omar Fall said at brokerage Jefferies said. "The guidance for a higher-than-expected fine on dealings with sanctioned countries and management backing away from a buyback are unhelpful for the capital return story," Fall wrote in a note to clients.
RESOURCES SHIFT
Seen by some investors as better-capitalized and more conservative than rivals such as Deutsche Bank
It expects this to deliver a double-digit percentage rise in overall earnings over the next three years, an increased dividend payout and an improved return on equity (RoE) of 10 percent by 2016, the bank has said.
BNP reported a 5.2 percent rise in first-quarter net income to 1.67 billion euros on revenue which fell 0.6 percent. The bank raised loan-loss provisions 19 percent, reflecting the Ukraine crisis and a tough economic environment in Italy.
Analysts had been expecting net profit of some 1.46 billion euros and a revenue drop closer to 2 percent, according to the mean of estimates compiled by Thomson Reuters I/B/E/S.
BNP said last month it planned to reduce Ukraine staff by 1,600 by 2015 as part of a restructuring there.
Despite the net profit outperformance, the bank's underlying performance was below expectations, according to Citigroup analyst Kinner Lakhani, who said in a note to clients that the cautious outlook from management may lead to single-digit cuts to analyst forecasts.
($1 = 0.7237 Euros)
(Additional reporting by Supriya Kurane in Bangalore; Editing by Jason Neely and David Holmes)
