Deutsche Bank downgrades BNP Paribas on Sudan litigation

Investing.com -- BNP Paribas (EPA:BNPP) shares have come under pressure after litigation tied to Sudan erased about €8 billion from the bank’s market value in the past four weeks, according to an analyst report from Sharath Kumar at Deutsche Bank. 

The stock has lagged European banks by 16% during that period as investors reacted to what the brokerage describes as “overwhelming uncertainty” surrounding the case.

Deutsche Bank downgraded BNP Paribas to “hold” from “buy” and cut its price target to €78 from €91. The bank’s shares last closed at €68.83. 

The brokerage says the downgrade reflects the absence of clarity on the litigation’s trajectory and the unpredictable nature of any potential outcome. It states that the issue now overshadows what the analyst views as otherwise solid fundamentals.

Kumar notes that each €1 billion in potential fines would reduce BNP’s CET1 ratio by about 13 basis points. 

It also points to what it describes as the bank’s relatively low CET1 buffer of roughly 200 basis points, compared with about 450 basis points for peers, adding that this amplifies the risk. 

Deutsche Bank raised its assumed cost of equity to about 13% to account for the heightened uncertainty.

The brokerage says BNP Paribas’ management has set return-on-tangible-equity targets of 12% for 2026 and 13% for 2028. It adds that the targets appear sound, but only if the litigation risks do not materialize.