At which point do BNP's nasty clawbacks become an issue?

BNP Paribas's results are out. Within the corporate and investment bank they are nasty, but they are not that bad compared to other banks.

Pre-tax income for corporate and investment bank is down 16% for the first nine months of the year versus the same period of 2010. The cost/revenue ratio is a handsome 56.4%, which as BNP points out, is better than all its rivals.

Nevertheless, things do not look especially pretty in BNP's fixed income division. Excluding the sale of sovereign bonds, BNP's fixed income revenues were down 33.4% year on year in the third quarter. Including the sale of sovereign bonds, they were down 60%.

This is interesting given BNP's continued hiring in fixed income this year. Headhunters in London say it's recruited at least 10 senior fixed income professionals in the City and as many as 50 front office fixed income professionals in total.

However, BNP's allegedly punitive clawback policy is said to have deterred some people form joining. The bank is said to specify that deferred bonuses will be withdrawn in chunks of 33% if the bank as a whole makes a loss, if the corporate and investment bank makes a loss, or if an individual's own business area either makes a loss or fails to meet an ROE target. These rules apply to new hires whose deferrals from previous employers are bought out when they join BNP. Some people have balked at the prospect of losing existing bonuses.

The question now, therefore, is whether BNP's sovereign debt exposure will impact the profitability of some businesses sufficiently to trigger these clawbacks. The bank said today that it's written down its Greek debt by 60% and has no intention of writing it down by more. That may prove wishful thinking.

It also said that bonuses this year will be substantially down and that it will announce hundreds of redundancies around November 15th. Fixed income looks like the most likely target.

BNP declined to comment on its clawback policy.