With over $2.5 trillion in total assets, BNP Paribas (BNPQY.PK) is the fifth largest financial institution in the world.1 Founded in Paris, France in 1966, BNP Paribas provides corporate and investment banking, private banking and asset management services to more than 23 million clients in 80 countries worldwide. BNP Paribas is the No. 1 provider of security and real estate services to corporations, professional equipment financing and online brokerage services for investors throughout Europe. In addition, BNP is the 3rd largest private bank, 6th largest asset manager and 10th largest insurer in Europe.2
Despite major turmoil in the financial markets and the sovereign debt crisis in the eurozone in 2011, BNP Paribas achieved net income of more than $7.5 billion with a net tangible equity base of approximately $75 billion. In addition to paying a current dividend yield of 4.3%, BNP Paribas sells for just over 5 times twelve month trailing earnings and approximately one-half of its net tangible equity per share. Given similar profitability in 2012, an investor today receives close to a 20% return on tangible equity by purchasing shares of BNP Paribas at roughly one-half of their net tangible book value per share.
This year BNP Paribas must continue to make adjustments in all areas of their operations to adapt to the challenging economic environment. BNP Paribas' exposure to sovereign debt in Greece, Ireland, Portugal, Italy and Spain has been reduced by more than 50% since mid 2011. Shareholders equity has doubled in the past three years and retention of earnings to boost capital ratios will continue to be a focus for management. The corporate balance sheet has shrunk, which will result in a Tier One common equity ratio of more than 9% possibly by the end of 2012, fully in line with Basel III capital requirements.
In early 2012, BNP Paribas reorganized their retail banking operations into a single entity titled International Retail Banking (IRB). In addition to their primary European markets in France, Belgium, Luxembourg and Italy, IRB operates a network of 3,000 branches in 15 countries, including the United States, Poland, Ukraine, Turkey, Morocco, Algeria, Tunisia and Egypt and sub-Saharan Africa. In an effort to maximize shareholder value, management at BNP announced in May a share repurchase program that consists of buying a maximum of 10% of its shares outstanding at a maximum price of 60 euro per share until November of 2013.
In The Intelligent Investor, Benjamin Graham wrote, "If we assume that it is the habit of the market to overvalue common stocks which have been showing excellent growth or are glamorous for some other reason, it is logical to expect that it will undervalue companies that are out of favor due to unsatisfactory developments of a temporary nature."3 In light of the recent uncertainty surrounding the sovereign debt crisis in Europe, BNP Paribas is an excellent example of Mr. Graham's recommendation to enterprising investors. BNP Paribas has the resources in capital and management expertise to carry them through a difficult period as the Eurozone stabilizes and the stock market is likely to respond with reasonable speed to any improvement shown. Most importantly, BNP Paribas is one of the largest financial institutions in the world selling for an attractive price in relation to its net assets, earnings and dividend payout.
I am long BNP Paribas.
Sources: 1. www.relbanks.com; Bank rankings 2012; 2. BNP Paribas 2011 Annual Report 3. The Intelligent Investor, 4th revised edition, pg. 79.
Disclosure: I am long BNPQY.PK.