BNP Paribas is not the largest bank in the world

By Felix Salmon
November 4, 2010
says as much, in paragraph 21 of its story. But that doesn't stop it from leading the story with this:

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Bloomberg not only should know better; it does know better. And it says as much, in paragraph 21 of its story. But that doesn’t stop it from leading the story with this:

The world’s biggest bank isn’t in the U.S., where regulators banned lenders from proprietary trading, nor in Switzerland, which is doubling capital requirements. BNP Paribas SA is in France, which is doing neither.

BNP Paribas’s assets rose 34 percent in the three years through June, reaching 2.24 trillion euros ($3.2 trillion), equal to the size of Bank of America Corp., the largest U.S. bank, and Morgan Stanley combined.

At the end of the piece, there’s even a league table of what Bloomberg calls “the world’s 15 biggest banks by assets”, with BNP Paribas in first place and BofA in 5th.

But here’s that 21st paragraph, which pretty much entirely negates the entire premise of the story:

European and U.S. banks use different accounting standards, making a direct comparison of their size difficult. In particular, U.S. generally accepted accounting principles net out the banks’ derivatives positions, unlike the international financial reporting standards used in Europe. This results in higher reported assets under IFRS. The comparison also excludes assets held by banks off their balance sheets.

And here’s a chart, via Alea, showing that Deutsche Bank’s assets, as of end-2008, were more than twice as high under European rules as they were under US rules:

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Basically, it all comes down to those derivatives books: in the chart above, Deutsche Bank’s derivatives assets alone, at €1.2 billion trillion, are significantly larger than its total size under US GAAP.

I’m quite sure that if JP Morgan had to report its assets under IFRS, it would be significantly larger than BNP Paribas. And I’m pretty sure that if anybody at Bloomberg stopped to think about it, they would come to exactly the same conclusion. So why on earth are they running headlines saying that “BNP Paribas Grows to World’s No. 1 Bank”? Anybody?

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Comments
5 comments so far

Japan Post is bigger than BNP & JP Morgan as well on an unadjusted IFRS basis.

For those with Bloomberg Terminals — POSTZ JP Equity CH3
and change the currency to Euros.

Or look here: http://yfrog.com/f/evx8sg/

I once had a contest on RealMoney on this question — 7 of 9 readers got it right, FWIW.

David

Posted by DavidMerkel | Report as abusive

sorry pedantic typo watch:

“derivatives assets alone, at €1.2 billion” – should be “derivatives assets alone, at €1.2 trillion”

Posted by Danny_Black | Report as abusive

A somewhat unrelated question:

According to various new reports, high-frequency trading is incredibly profitable. But in my extremely limited understanding of how this world works, it seems to me that there would need to be a class of counterparties who are consistently losing money.

A) Is this analysis correct?
B) Who are these people? Daytraders getting sucked in by those annoying ads for e-trader? CalPers?

Posted by FrancisL | Report as abusive

FrancisL, I suspect that it is in some sense a “tax” on all conventional investment transactions. The HFT supporters talk about “low spreads”, but they neglect to mention that they reduce the spreads primarily by splitting every transaction into two (or more) pieces and acting as a (profitable) intermediary.

Q: If Jack is willing to pay $4 for a widget and Jill is willing to sell it for $3, what price should they set for the transaction?

A: Jack should sell it for $4, Jill should receive $3, and Wall Street should get $1.

Posted by TFF | Report as abusive

FrancisL, I suspect that it is in some sense a “tax” on all conventional investment transactions. The HFT supporters talk about “low spreads”, but they neglect to mention that they reduce the spreads primarily by splitting every transaction into two (or more) pieces and acting as a (profitable) intermediary.

Q: If Jack is willing to pay $4 for a widget and Jill is willing to sell it for $3, what price should they set for the transaction?

A: Jack should sell it for $4, Jill should receive $3, and Wall Street should get $1.

Posted by TFF | Report as abusive
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