By Andrew Callus and Matthias Blamont
PARIS (Reuters) - BNP Paribas' capital markets business grew by a fifth in the second quarter - a signal clients have shrugged off the U.S. sanctions busting affair that pushed France's biggest bank to a second-quarter loss.
The 4.317 billion euro ($5.78 billion) loss, its first since the 2008 financial crisis, was the result of a 5.95 billion euro charge for a fine that was announced on June 30 after weeks of speculation about the size of the penalty.
BNP Paribas also pleaded guilty on two criminal charges and accepted a ban on certain dollar clearing activities that takes effect in January - all in a settlement with U.S. authorities for breaking U.S. sanctions against Sudan, Cuba and Iran over a 10-year period up to 2012.
It was the biggest fine to date for such violations and the largest ever U.S. fine against a European bank - one of a series of big fines handed out by U.S. prosecutors to the banking industry in recent months.
The fine - which Chief Executive Jean-Laurent Bonnafe said had been paid in full - overshadowed an otherwise strong and better than expected second quarter for France's top listed bank.
"Overall, these are a solid set of results demonstrating that the U.S. litigation has not materially impacted the group's performance," said analysts at Espirito Santo investment bank, who have a "neutral" rating on the stock.
BNP's corporate and investment banking division turned in a particularly strong performance, with revenue in its capital markets division up 22 percent - a performance deemed noteworthy by Chief Financial Officer Lars Machenil.
"If you reflect back, the majority of the elements related to the comprehensive settlement announced on June 30 were in the public domain as of June," he told Reuters Insider TV in an interview. [ http://reut.rs/1odfyZE ]
"That basically reflects that the bank is solid and that basically its clients have been supportive over that period. They acknowledge that we regret what has happened, that we have reached a settlement, and that in particular we have taken remediation steps."
Shares in BNP Paribas, which has slipped down the ranking of world banks by market value since its problems with U.S. authorities came to light in February, were little changed on Thursday, up 0.4 percent at 50.05 euros at 0940 GMT.
Excluding the charge, which came on top of the $1.1 billion provision already taken for U.S. litigation earlier this year and included a 200 million euro sum for remediation costs, BNP Paribas' group net profit was 1.9 billion euros compared with a mean analyst forecast of 1.53 billion according to Thomson Reuters I/B/E/S.
In the first quarter, net profit was 1.668 billion euros and a year ago it was 1.765 billion.
Revenue fell 2.3 percent as the euro zone's fragile exit from recession, record low interest rates and a fall in fixed-income trading hit both retail and investment banking.
DOLLAR CLEARING BAN
Machenil would not be drawn on the impact of the one year ban on some dollar clearing activities which begins in January and affects transactions in the oil and gas business which was behind the sanctions-busting.
Under the terms of the settlement, BNP will have to clear all its dollar transactions in New York, under supervision, and any oil and gas related business landing there will be forwarded to a correspondent bank for clearing.
"That is on a sliver of our activities," he said. "It takes time to set up, and that is why we have negotiated time to do so."
At least one major oil and gas client said it was keeping its business with BNP despite the restrictions.
"We have in no way changed our relationship with BNP Paribas," said Patrick de La Chevardiere, the finance chief of top French oil company Total (PA:TOTF).
"We are just waiting for them to explain how they will do the clearing on our operations during the period they are banned... The group has completely kept its confidence in BNP."
Although the bank has settled through the fine, the ban and other measures, U.S. investigations are continuing into what individuals at the bank may have done.
But Machenil downplayed the potential for this to overshadow the bank in future.
"The bank has reached a comprehensive settlement with the U.S. authorities," he said. "As long as the bank performs all the remediation steps, that basically settles the matter. For all other elements I would have to refer you to the U.S. authorities."
Regarding the potential impact of western sanctions on Russia, Machenil said BNP Paribas had limited exposure at group level to Russia and no retail activities there.
"Of course as embargoes unfold we will abide by those embargoes," he said, but added: "we have very limited exposure, which is typically in collateralised kind of activity."
(1 US dollar = 0.7468 euro)
(Additional reporting by Sudip Kar-Gupta, Blaise Robinson and Michel Rose; editing by Tom Pfeiffer)