PARIS (Reuters) -France's BNP Paribas on Tuesday reported a forecast-beating jump in fourth-quarter net income as its investment bankers rode a surge in trading activity.

Its shares rose around 3% in early trading, outperforming France's benchmark CAC 40 index.

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

Revenue increased 10.8% to 12.1 billion euros, above the average estimate of 11.6 billion.

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

However, it lowered a key profit target for 2025 and said it would cut costs further.

"We think Q4 results are supportive," Barclays analysts said in a note, adding that BNP had delivered on key elements, including return on equity.

"We expect positive reaction to the results, also in light of flattish share price performance vs the sector in the last month," Citi analysts wrote.

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' stocks soared, so Tuesday's results will be a relief for long-time CEO Jean-Laurent Bonnafe.

Investment banking revenue climbed 20% in the quarter, driven by a 34% jump from trading in fixed income, currencies and commodities and a 30% increase from equity prime services. 

The FICC performance beat the average growth at 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 a 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 by revenue, according to data firm Dealogic.

CAUTIOUS OUTLOOK

Yet BNP struck a cautious note on the outlook. 

It 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 cuts would bring total cumulated savings since 2022 to 3.3 billion euros.

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

It 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 expects average annual growth in net income of more than 7% over 2024-2026, against a previous forecast of about 8% in 2022-2025, which some analysts had said it could struggle to reach.

While having significantly improved its cost-to-income ratio, a measure of efficiency, BNP remains above the average for banks in Europe.

The 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, as recorded by the European Banking Authority in a report last year.

($1 = 0.9712 euros)