BNP Paribas is planning a material increase to headcount in its global markets division in the coming years as it looks to expand its US business and establish itself as the premier European investment bank on the global stage.
Olivier Osty, the bank's head of global markets, identified global credit trading as one area where BNPP will expand significantly over the next three years, with a particular focus on the US across investment-grade, high-yield and securitised products. The French bank is also planning a substantial rise in headcount in research, distribution and execution in BNP Paribas Exane’s US cash equities business as it looks to triple the amount of US companies its stock market analysts cover from about 150 firms currently.
The build-out is further confirmation of BNPP’s ambitions in sales and trading, which contrast with various European rivals that have retrenched. The US accounted for around 25% of BNPP's global markets revenues in 2018. That increased to 30% in 2021 following several landmark acquisitions, including Deutsche Bank’s prime brokerage unit, and the French lender is now targeting a 35% share for its US trading business by 2025.
“It’s not easy to break into the US market. We’ve managed to grow over the past three years, supported by the Deutsche Bank transaction, and now the growth has to come organically as well,” Osty told IFR in an interview. "It’s going to take time. It’ll be an evolution, not a revolution. There is a three-year plan that will be properly coordinated across banking and markets to put the bricks in place one by one."
BNPP’s global markets revenues have increased 44% over the past three years to €6.8bn in 2021 as the French lender has made a concerted effort to expand. That has coincided with rivals such as Credit Suisse and HSBC scaling back their presence in markets, as well as one of the most buoyant environments for trading businesses in the last decade during the coronavirus pandemic.
BNPP recently announced plans to continue the growth of its trading and investment banking businesses over the next three years and launched an overhaul of how its global markets division is organised. Expanding its US business forms an important part of that initiative and strikes a contrast with its strategy in retail banking, where BNPP sold San Francisco-based Bank of the West late last year.
In equities, BNPP has been beefing up its flow-trading operations to bring greater balance to a unit that has traditionally relied on derivatives to generate the bulk of its revenues. The acquisition of Deutsche’s prime services division, where banks offer financing and execution services to hedge funds, has helped bolster its standing among that set of clients. Meanwhile, taking full ownership of cash equities specialist Exane last year has further expanded its reach with institutional investors.
Best ever
BNPP recorded its best ever year in equities trading in 2021 with €2.9bn of revenues following growth in these areas, including a revenue contribution of about €95m in the fourth quarter from the consolidation of Exane. The bank believes its expanded research coverage of US stocks will further aid its investments in electronic and high-touch trading in US equities, including a focus on sectors such as healthcare and technology where BNPP is also looking to increase its investment banking activity.
“We want to develop the flow business in the US. We’re growing on the prime brokerage side and we’re also targeting cash equities. Our ambition is not to challenge the big US banks, but to provide enough services that global clients in equities will consider us relevant," said Osty.
“We’re already seeing lots of cross-selling across clients of Exane, clients of BNP Paribas and clients of the ex-Deutsche Bank platform. They’re starting to understand that we’re not just an equity derivatives house – we are much bigger and can provide many more services,” he said.
Credit build-out
Credit trading is another area where BNPP is committing serious resources to grow. “Credit is still the largest asset class in the US in terms of revenue. We were underweight this business so it’s one of our largest pushes internally,” said Osty.
“In a world where credit spreads are becoming wider because of rising interest rates, it’s going to be even more important to provide these products to our clients," he added.
More broadly, BNPP is investing heavily in technology across its markets division. Osty said BNPP now has more information technology staff in global markets than staff working across sales, trading and structuring. “We live in a world where technology is more and more important,” he added.
War for talent
BNPP isn’t the only firm vying to be the top European bank in sales and trading. Barclays has been expanding in many of the areas that BNPP is targeting, such as prime services and securitised products – and has the notable advantage of the old Lehman Brothers US platform to leverage. Deutsche quit equities trading in 2019, but remains a force to be reckoned with in fixed income, where it made more money last year than BNPP did across sales and trading.
Osty conceded his firm is not immune from the fierce “war for talent” that has gripped the industry following two bumper years for trading results.
“There was a lot of turnover last year at banks, with aggressive hiring from the buyside in particular," he said. "We were impacted like everyone else, but we’ve also found it much easier to attract good talent.”