PARIS (Reuters) - BNP Paribas (PA:BNPP) set out plans on Tuesday to deliver an increased dividend payout and an improved return on equity by 2020, hoping that headwinds it faces, such as low interest rates and regulatory pressures, would ease by then.
BNP has been rebounding from a costly 2014 U.S. legal settlement, reshuffling its top ranks to tighten control and restore investor confidence.
Its new targets are for a 6.5 percent annual rise in net income on average over the next three years, a 50 percent dividend payout versus 45 percent in 2016, and an improved return on equity (ROE) of 10 percent, the bank said.
Its ROE – a measure that shows how well a bank uses shareholder money to generate profit – was 9.4 percent in 2016, within the 9 to 10 percent range that analysts see as necessary to cover a bank's cost of capital.
BNP's plan is based on "conservative macroeconomic assumptions" and factors in regulatory constraints which would continue to grow in the current Basel 3 framework, it said.
"Headwinds will continue to be strong at the beginning of the period before letting up in 2019-2020," the bank said.
It said its "transformation costs" would stand at 3 billion euros in 2017-2019, which would be financed by 3.4 billion in savings over the same period. However, a part of the costs would be paid upfront, which should delay somewhat the benefits of cost synergies.
BNP, one of euro zone's biggest banks, reported on Tuesday as well a lower than expected rise in the fourth-quarter net profit, weighed by a goodwill impairment for its Polish unit BGZ.
BNP Paribas' fourth-quarter net income rose to 1.44 billion euros ($1.5 billion), more than doubling from 665 million a year ago, although the result came in below the average of analyst estimates of 1.50 billion in a Reuters poll.
Group revenues rose 2 percent to 10.66 billion euros, above the poll average of 10.48 billion, as a surge in trading activity helped corporate and institutional banking revenues rise by 8 percent.
BNP Paribas shares have outperformed the European banking sector, up more than 50 percent since February last year (SX7P), helped by resilient earnings, talk of growing market share on the back of retreating rivals and improving capital ratios.
BNP Paribas' results were published on its website.
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