Outlook Sacrebleu! The Americans’ reported plan to fine BNP Paribas $10bn for alleged sanctions-busting has sparked quite the transatlantic tiff.
French Foreign Minister Laurent Fabius is fuming over the size of the penalty, which he has described as “unreasonable”.
But is it? BNP isn’t the first European bank to be accused of doing business with various regimes the US does not like and has imposed sanctions upon.
HSBC was also caught out and paid out $1.9bn in 2012 to settle similar, but apparently less serious, charges.
Let’s leave aside the issues at stake for a moment and look purely at the figures.
HSBC’s fine looks to be very substantial. But when compared to the bank’s earnings in the year in which it was levied the impact was actually rather limited.
In 2012, the bank turned in underlying profits of $16.4bn on revenues of $63.5bn. It also paid out $8.3bn in dividends, up 10 per cent, and handed its chief executive Stuart Gulliver a package worth £7.4m. He wasn’t the best paid banker there either. Clearly no one at HSBC was going hungry.
The penalty was still painful, not least because of the public relations hit. But the money amounted to about six weeks’ earnings.
Even though fines on banks have recently undergone a step change in terms of their size, most of them are still having only a modest impact on earnings.
Institutional investors have tended to regard fines as one-offs or simply part of the general cost of doing business. They might huff and puff a bit every now and again for form’s sake, but as long as the dividend cheques keep flowing then they haven’t worried overly much.
It begs the question: are these fines really effective? Do they really matter?
Which brings us back to BNP because $10bn really does matter. It’s more than BNP made in profit last year, and more than it probably will make this year. Accompanied, perhaps, with a possible temporary ban on moving money in and out of the US, such a penalty will have a real and demonstrable impact on the business and on BNP’s share price, which has already taken quite the tumble. What’s more, it will get the attention of other banks.
So perhaps it’s not so unreasonable after all. What might be is the fact that these mega-fines do seem to be concentrated solely on European banks, which are already faced with investment banking regulations their US rivals don’t have to worry about if they want to operate in the land of the free. That’s the point for Mr Fabius to focus on.