BNP Paribas Securities Services' plans to expand in the U.S. could be hampered because of last month's guilty plea by its French banking parent to processing $30 billion in transactions with countries that are under U.S. government sanction.
The asset servicing unit of Paris-based BNP Paribas Group SA has $8.055 trillion in assets under custody and $1.442 trillion in assets under administration, mostly for non-U.S. clients. Patrick Colle, the custody bank's general manager, said in April that BNP Paribas Securities Services was targeting an average annual revenue growth rate of 30% from the U.S. custody business by 2016. A month earlier, executives at BNP Paribas Corporate and Investment Bank, which includes securities services, set a target U.S. annual revenue growth rate of 20% to 25% for the same time period.
But those growth expectations could be reduced as a result of the deal BNP Paribas Group reached with U.S. and New York state prosecutors, which includes an $8.97 billion penalty and a one-year suspension, in 2015, of direct U.S. dollar clearing on BNP Paribas' oil and gas, energy and commodity finance businesses.
“I would presume that (growth) would go down,” said Jean-Pierre Lambert, equity analyst at Keefe, Bruyette & Woods Ltd., London. “Their growth rate won't be the same, particularly in the U.S. Some potential U.S. clients might not want to work with an agency with a criminal record.”
That decline would be a blow to the ambitious plans of BNP Paribas' New York-based U.S. securities services business that, according to industry insiders, had set its sights on the U.S. pension fund, endowment and foundation market, playing off its longtime experience in 35 countries in Europe, Asia-Pacific and Latin America, and its current $170 billion in U.S. assets under custody for money managers and hedge funds.
Officials at BNP Paribas Securities Services in New York would not comment for this story.
After the settlement was announced, BNP Paribas affirmed it will stick with its overall U.S. growth targets.
“The group remains focused on implementing its 2014-2016 business development plan,” Jean-Laurent Bonnafe, CEO of BNP Paribas, said in a conference call with analysts on July 1. “We confirm our ambition to meet the targets of this plan announced in March this year. In particular, North America remains a strategic market for the group where we plan to further develop our retail, investment solutions and corporate and investment banking franchise over the coming years.”
Consultants and officials at pension funds contacted for this story would not comment on the record about the effects of the settlement, although one consultant said that BNP Paribas Securities Services would have a tougher time building the U.S. custody business, particularly with public plans, because of reputational risk associated with the guilty plea.
KBW's Mr. Lambert said BNP Paribas could face what happened to Credit Suisse Group AG, which pleaded guilty May 19 to one count of tax evasion and paid $2.6 billion in penalties to U.S. federal and New York state financial regulators. After the guilty plea, the $25.4 billion Texas Employees Retirement System, Austin, stopped trading with Credit Suisse's broker-dealer business. The pension fund has “a policy against hiring firms convicted of felonies,” said Mary Jane Wardlow, Texas Employees spokeswoman.
Executives at other pension funds said any difficulty BNP Paribas has with building its U.S. securities services business would increase because its custody and asset servicing is relatively new to U.S. clients. And while the BNP guilty plea is “not a death sentence,” one pension fund executive said: “If BNP were to send us a proposal, the first question we would ask would be, 'What about the settlement?'”
Another BNP Paribas unit, BNP Paribas Investment Partners, the U.S. money management business, took steps the day of the guilty plea to seek regulatory exemption from the U.S. Department of Labor so it can continue managing retirement assets as a qualified professional asset manager, said Michael Trupo, DOL spokesman.
Money managers that either pleaded guilty or are convicted of criminal activity are required to apply for an exemption from the Labor Department to keep the QPAM designation. Credit Suisse is also seeking a QPAM exemption; Mr. Trupo said the DOL has not made a decision on that request.
BNP Paribas Investment Partners managed $3.936 billion in U.S. institutional tax-exempt assets, including $1.73 billion in defined contribution assets, both as of Dec. 31, according to Pensions & Investments data.
