By Lionel Laurent and Matthias Blamont and Aruna Viswanatha
PARIS/WASHINGTON (Reuters) - French bank BNP Paribas
An eventual settlement is likely to be closer to $2 billion, and also will likely involve a guilty plea, a person familiar with the matter said.
The person declined to say whether the bank itself or one of its units would be required to plead guilty to criminal charges. A plea at the parent company level could more severely constrain the bank's ability to do business in the United States.
A settlement could come in the next month, the person, who spoke on condition of anonymity, said.
The warning from France's biggest bank comes as the global banking industry faces mounting legal woes due to investigations into a string of alleged misdeeds, including fixing benchmark interest rates and manipulating foreign-exchange markets.
A big U.S. fine could have ramifications for BNP beyond the immediate financial hit, as the bank is targeting expansion in North America as a key plank of a new strategy to raise revenue and profits outside traditional European markets.
"There is uncertainty with respect to the amount and the nature of penalties the U.S. will impose," Chief Financial Officer Lars Machenil told Reuters Insider television. "It's not impossible that the fine is far in excess of the ($1.1 billion) provision."
Asked if the fine could reach $2 or $3 billion, BNP's Machenil told Reuters Insider: "There is nothing more to say."
Machenil told analysts on a conference call that the bank had already set aside around 2.7 billion euros ($3.73 billion) for litigation costs, including the specific $1.1 billion provision.
His comments came after BNP posted a higher-than-expected 5.2 percent rise in first-quarter net income.
Shares in the bank were down 3.8 percent at 53.80 euros by 1434 GMT, having fallen as low as 53.55 euros, not far from their lowest of the year so far. The European banking sector <.SX7P> was down 0.8 percent.
U.S. federal prosecutors are considering criminal charges against BNP for doing business with countries subject to U.S. sanctions, such as Iran, Sudan and Cuba, a second person with knowledge of the matter has said. The New York Times first reported the potential charges.
Regulators may consider suspending the bank's ability to conduct dollar clearing in New York - the process by which transactions are quickly settled and cleared within the banking system - and are looking at possible penalties for individual employees, the person said.
The head of the New York Department of Financial Services, which is investigating BNP over sanctions violations, said last month his office is, in general, considering penalties including banning certain banks from dollar clearing transactions for specific time periods, but declined to name specific banks.
BNP declined to comment. The bank has said it wants North America to account for 12 percent of revenue by 2016, up from 10 percent in 2013, and wants to improve cross-selling between its U.S. investment bank and retail bank unit BancWest.
"The risk is that some form of operational sanction may undermine the bank's ability to meet these targets," analyst Jean-Pierre Lambert at brokerage Keefe, Bruyette & Woods said.
"There does not seem to be a serious likelihood that BNP will lose its banking license outright, but there may be consequences for its current activities if its ability to clear U.S. dollar transactions is limited," Lambert said.
Past U.S. settlements have ensnared rivals such as Standard Chartered
Meanwhile BNP's results showed the effects of its full takeover of Belgian subsidiary Fortis last year, which helped offset writedowns on assets exposed to the Ukraine crisis and rising loan losses in Italy.
The bank has a robust capital base relative to peers, with a core Tier 1 ratio of 10.6 percent at end-March. Machenil said BNP has "excess capital" but would not use this to buy back shares at their current valuation.
($1 = 0.7237 Euros)
(Additional reporting by Supriya Kurane in Bangalore; Editing by Erica Billingham; editing by Andrew Hay)