PARIS (Reuters) -France's BNP Paribas reported a forecast-beating jump in net income in the fourth quarter as its investment bankers rode a surge in trading activity, but the lender lowered a key profit target for 2025 and said it would cut costs further.

The euro zone's biggest bank by assets said group net income rose by 15.7% to 2.32 billion euros ($2.39 billion) for the three months ending in December, beating the 2.24 billion-euro average of 13 analyst estimates compiled by the company. 

Revenue over the period increased by 10.8% to 12.1 billion euros, also above the 11.6 billion-euro analyst average estimate. 

BNP has disappointed investors in recent quarters and its shares were among the worst performing of major lenders last year, losing nearly 7% while European rivals' stock soared, so Tuesday's fourth-quarter and full-year results will be a relief for long-time CEO Jean-Laurent Bonnafe.

Investment banking revenue climbed 20% in the fourth quarter, driven by revenue from trading in fixed income, currencies and commodities (FICC) soaring 34% and equity prime services' sales by 30%. 

BNP's performance in FICC trading beat the average growth among Wall Street banks, which Jefferies calculated at 26%.

Bonnafe has bet on BNP's investment bank to fill gaps left by retreating European rivals and compete with dominant U.S. peers.

In recent quarters, the investment bank has helped offset sluggish retail performance at BNP, as record inflows into government-regulated high-interest savings squeezed French banks' margins, while lenders elsewhere in the euro zone benefited from higher rates.

BNP's market share in investment banking in Europe, the Middle East, and Africa rose to 4.9% in 2024 from 4.6% in 2023 in terms of revenue, according to data firm Dealogic.

CAUTIOUS OUTLOOK

Yet BNP also struck a cautious note on the outlook. 

The bank revised a key profitability target down for 2025, without giving a clear reason, and announced 600 million euros more in cost savings in 2026, on top of 600 million euros this year. 

These additional costs cuts would bring total cumulated savings since 2022 to 3.3 billion euros.

BNP is now targeting a return on tangible equity (ROTE) of 11.5% for this year, down from a previous target of 11.5%-12%. 

The group expects to reach 12% ROTE in 2026, but said the number should rise, helped by its 5.1 billion-euro acquisition of AXA's asset management arm, set to close mid-year.

BNP now expects an average annual growth of its net income of more than 7% over the 2024-2026 period, against a previous forecast of about 8% in 2022-2025. Some analysts had said that BNP could struggle to reach the 8% target.

While having significantly improved its cost-to-income ratio, which measures a bank's efficiency by comparing operating expenses to revenues, BNP remains above the average in Europe.

The bank's cost-to-income ratio stood at 65% at the end of December, down from 71.4% a year earlier. That's above the European average of 53% as of June 2024 in Europe as recorded by the European Banking Authority in a report last year.

BNP has also been hit by political uncertainty in debt-laden France since President Emmanuel Macron called snap elections in June, resulting in a hung parliament.    

The bank said it would propose a dividend of 4.79 euros per share, up 4.1% from 2023. It also said it planned to buy back 1.08 billion euros worth of shares.

($1 = 0.9712 euros)