BNP Paribas considers portfolio sale

Under pressure to meet regulatory requirements, French bank BNP Paribas SA is the latest European lender to consider the sale of a portfolio assets, a source said Monday, Nov. 28.

BNP Paribas, which has had a heavy exposure to Greek sovereign debt, declined to comment on a Financial Times report claiming it is weighing the sale of a portfolio of more than $700 million of fund interests, without being more specific about what assets would be up for disposal. But a source close to the secondary private equity market said BNP was actually quite late to the party and that other European banks had been leading the way in recent months.

Most recently, Denmark's FIH Erhvervsbank was reported to be in the process of selling off its €180 million ($238 million) private equity fund interest portfolio, following in the footsteps of larger institutions such as Britain's Barclays plc, which not only sold a $740 million portfolio of investments, but has also spun out its midmarket buyout firm, Barclays Private Equity.

A sale might be just another step in BNP Paribas' long history of private equity investment and divestments. One of its predecessor institutions, Paribas, could lay claim to be one of the pioneers of the sector, having been in the business since 1872, when the newly merged Franco-Dutch Banque de Paris et des Pays-Bas began building up a portfolio of long-term equity investments in industry with an eye toward long-term gains. Following another merger -- 130 years later -- with Banque Nationale de Paris, BNP Paribas sold its venerable investment arm Paribas Affaires Industrielles to the unit's management to create what is now heavyweight French private equity manager PAI Partners. But like many of its European peers, the Paris bank has continued to invest in private equity funds.

However, the sale of the funds portfolio might be a more significant long-term change of tack. The bank is not only being forced to conform to tough new international capital adequacy frameworks such as Basel III and European Union regulations, but also to shrink its costs and balance sheet still further, following its exposure to the Greek sovereign debt market.

In a third-quarter earnings statement earlier this month, BNP Paribas said it had increased its Greek debt provision to 60% of its total exposure, which equated to "further provision of €2,094 million for the banking book and of €47 million for the insurance portfolio." Furthermore, the bank added, "the effect of the additional impairment of Greek bonds on associated companies was negative to the tune of €116 million."

In the statement, the bank said its deleveraging plan was focused mainly on its balance sheet in dollars. It said the goal was to reinforce the common equity Tier 1 ratio by 100 basis points by the end of 2012 to achieve a 9% ratio, while reducing the group's dollar funding needs by $60 billion, "above and beyond the $22 billion already achieved in the first half of this year." Some $20 billion of funding needs had been cut in the third quarter, $20 billion would be taken out in the final quarter and the remaining $20 billion would be cut out in 2012.

While private equity was not specifically mentioned in the statement, the large sums invested in the portfolio, and the fact that loans to private equity will attract a heady 150% risk weighting, will likely encourage the bank to examine exit options for both equity investments and for loans to the sector.

The bank said that non-dollar adjustments were also underway.