BNP Paribas has a number of deleveraging and disposal options to mitigate the impact of the next phase of Basel rules, equity analysts at JP Morgan said on Wednesday.

In a research note to clients, European bank analyst Delphine Lee listed potential avenues the French bank could explore should regulators further tighten minimum capital requirements on lenders.

BNP's Luxembourg retail activities, the group's 25% stake in AG Insurance and the firm’s private equity activities could be sold or scaled down.

The asset management division - BNP Paribas Investment Partners -  currently a strategic asset for the group given its role for institutional clients and attractive return profile, could consider a listing, similar to Amundi, to generate capital gains.

Elsewhere, JP Morgan's Lee reckons that growth initiatives for BNP Paribas Securities Services, Transaction Banking and Cash Management units could be postponed if regulatory impact is higher than anticipated.

“There is still a tail risk that RWA inflation from new Basel proposals could be higher for some banks, in particular large ones in our view,” Lee wrote in the research paper.

The analyst stressed that at this stage disposals or deleveraging scenarios are unlikely and BNP Paribas management is far from considering adjusting the scope of activities and changing strategic directions.

“However, these initiatives could provide mitigating factors, should capital come under pressure, and as demonstrated in the past," she added.

"BNP has been able to reduce the balance sheet and capital/liquidity consumption relatively quickly when needed, without affecting the dividend policy.”

Meanwhile, Lee and her colleagues upped their rating on BNP Paribas from ‘underweight’ to ‘neutral’.

JP Morgan's estimates for BNP were ~20% below company sourced consensus at the beginning of the year, as top line expectations were considered too optimistic.

Since then, consensus has cut BNP revenues by 5% and earnings per share by 15%. The investment bank's estimates are now only 2% below in 2017. 

"With consensus now forecasting only ~1% revenue growth next year, we feel more comfortable with market expectations," Lee added.

"Profitability looks solid with 10% ROTE (return on tangible equity) but more cost reduction is required to prevent erosion of returns given the need for further capital build."