February 5, 2020 / 5:01 PM / in 17 days

FOCUS-France's BNP Paribas on prowl for further European expansion

* BNP Paribas hopes to grow CIB market share in Europe

* EU heavyweights caught up in costly restructurings

* EU banks lose market share to U.S. players

By Maya Nikolaeva

PARIS, Feb 5 (Reuters) - BNP Paribas is looking for further opportunities to expand its investment banking franchise in Europe and fortify its lead over local rivals after last year taking over Deutsche Bank's electronic equity and prime broking operations.

France's biggest bank has jumped to the top of Europe's investment banking league tables by gaining market share in fixed income and equities trading, as others pare back or exit.

Yann Gerardin, head of corporate and institutional banking at BNP Paribas, told Reuters after the bank reported a doubling of fourth quarter global markets revenue that it would examine openings like the Deutsche one if they arose.

"If there is an exceptional opportunity, we will look at it," Gerardin said.

BNP Paribas has said it hopes the Deutsche deal will bring it an extra 400 million euros ($441 million) in annual revenue, while another of its senior bankers said the deal could help it grow in equity capital markets across Britain and Germany.

The bank said on Wednesday it wanted to strengthen its lead in Europe during 2020, while having "development plans" in countries such as Spain and Italy, increasing the number of clients among fund managers and integrating Deutsche's prime brokerage platform, which serves hedge fund clients.

BNP Paribas' strategy is to increase its corporate and institutional client base, while offering them a wide range of products - from advising on listings and acquisitions to selling loans and helping to hedge risks or clear transactions.

This expansion plan comes amid a reshaping of the European financial landscape, which saw Wall Street heavyweights take advantage of a banking sector weakened by the 2008 financial crisis and the tougher regulation to flex their muscles.

However, as some European rivals have retreated, BNP Paribas has picked up staff and businesses in a rear-guard challenge to U.S. firms including JPMorgan, Goldman Sachs and Morgan Stanley.

This is already paying off for the French bank, which outranked both Deutsche and Britain's Barclays to become the top performing European investment bank last year, Refinitiv data shows, growing its share of the fees earned faster than any of its top 20-ranked rivals.

'LAST MAN STANDING'

BNP Paribas has traditionally trailed the likes of Deutsche and Barclays in the investment banking league tables, while paying its top bankers less. Six years ago the French bank ranked only 7th in Europe, Refinitiv data shows.

Data from their annual reports shows the number of staff receiving annual compensation exceeding 1 million euros ($1.1 million) at BNP Paribas was 181 in 2018, compared to 643 at Deutsche Bank and 430 at Barclays.

As well as buying the Deutsche business, BNP Paribas has also drafted in corporate brokers from Credit Suisse in Britain and hired senior investment bankers over the last two years from rivals including JPMorgan and Citigroup.

"The corporate and investment bank is one of the main strengths of BNP. It is almost the last man standing within European banks ... thus leaving an open field for U.S. banks and BNP," Ion-Marc Valahu, a fund manager at Geneva-based investment firm Clairinvest, said.

Valahu sold his BNP Paribas shares in November after they rose 30% from January 2019, overtaking Santander to claim the title of the euro zone's biggest bank by market value.

BNP Paribas' fixed income business was one of its most improved areas in 2019, with revenue up 36%, industry analysts say, but there are questions about the profitability of the business lines it is expanding into.

Despite gaining market share, the bank cut a key profitability target on Wednesday due to persistently low interest rates.

One big growth area has been the low-margin repo market, where it gives clients short-term cash in return for government bonds or other high quality assets as collateral. Clients buy those assets back for a small rate of interest.

"I just don't understand the overall strategy of putting a lot of balance sheet into things like vanilla repo which don't make much money," an executive at a rival U.S. bank said. ($1 = 0.9083 euros)

Additional Reporting by Abhinav Ramnarayan, Sinead Cruise and Lawrence White in London and Sudip Kar-Gupta in Paris; Editing by Alexander Smith

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