BNP (XPAR:BNP), one of the largest banking franchises in Europe with headquarters in France, was the largest detractor for the fiscal year. During the year, the company has reported mixed results. Most recently, BNP released fiscal 1H results that included year-over-year declines in revenue, pre-provision profit and operating income. However, these declines were largely due to one-time events, including an outsized regulatory tax payment. Additionally, the company has been focused on a cost transformation project that is front-end loaded, so it should start generating greater net savings in 2019 and 2020. Management has reiterated a cost-to-income target of 63% for 2020, which is in line with our expectations and it continues to target a 12% capital ratio. Lastly, recent events in Turkey have weighed on the company’s share price, but we consider BNP’s exposure to this market to be immaterial at 2.5% of total pre-tax profit.
From David Herro (Trades, Portfolio)'s third quarter 2018 Oakmark International Fund commentary.
