BNP Paribas awaits its punishment – Update on BNP Paribas
Over the course of time, the size of the US legal fine for BNP has been increasing. A few weeks ago, the settlement for BNP disguising transactions in USD with sanctioned US countries such as Iran, Sudan, and Cuba was at USD 6.75 billion (EUR 5 billion), now the US authorities are seeking an arrangement in excess of USD 10 billion (EUR 7.35 million). So in other words, the fine will be between EUR 4.00 and EUR 5.90 per share, which is between 7.8% to 11.5% of the present share price.
Whatever the size of the fine, what really hurts in this case is that a country which promotes democracy and free trade (the US), systematically undertakes legal action and/or other types of sanctions against companies based in countries which are its most important trade partners (France), based on its own unilaterally decided sanctions. Furthermore, what appears to be even more astonishing is that their own currency, which is recognized as an international payment vehicle and which is used by more or less everybody, suddenly became through this act, a tool of war. Wasn’t it up until now, an instrument of welfare?
But let’s go back to BNP’s day-to-day operations, its market capitalization, its investment outlook and the current investment case. It appears that since the beginning of April, the market has already lowered BNP’s market cap by about 15%. Hence, one can assume that a large part of whatever may come, is priced in today.
Assuming that BNP makes a guilty plea to settle the issue, one can conclude that the bank will maintain its US banking licence and consequently access to the USD clearing system. Therefore, the present share price weakness is a good entry point for long and short-term investors as the fundamentals of the bank’s management strategy (diversification, steady underlying earnings recovery potential, tier one ratio still at reasonably good levels) have not changed.