BNP Paribas, France's largest bank, said today that profits fell by more than half in the third quarter, following the collapse of Lehman Brothers and the worsening financial crisis.

Shares in the bank fell by more than 3 per cent today after it said that net income declined to €901 million (£728 million) from €2.03 billion a year earlier.

BNP Paribas had appeared to have escaped the worst of the financial crisis and had acquired the Belgian operations of Fortis, but it was unable to evade the impact of Lehman's bankruptcy and the collapse of the Icelandic banks.

The bank said its earnings for the July-September quarter were affected by “numerous critical situations in the financial services industry and unprecedented turbulence in the markets since early September.”

The collapse of Lehman and the big Icelandic banks contributed to writedowns of €1.1 billion.

Profit before tax at BNP Paribas's investment bank fell from €760 million a year before to to €38 million. The division, which increased revenue by 4.6 per cent, had €1.03 billion of loan provisions and €289 million of asset writedowns.

However, BNP performed better than its investment banking rivals in Europe. The securities units of Frankfurt-based Deutsche Bank, Credit Suisse, UBS and Société Générale all reported losses for the quarter.

Provisions for risky loans soared from €462 million to €1.99 billion, almost triple the €700 million analysts had estimated.

The asset management and investment banking units took €512 million of charges related to Lehman.

The investment banking division also set aside €462 million tied to debt backed by US bond insurers, and €83 million for risks linked to Iceland's banks.

The bank last month agreed to take control of Fortis in Belgium and Luxembourg for €14.5 billion and became the biggest lender by deposits in the 15 countries sharing the euro.

Pre-tax earnings at the French retail network rose 5.5 per cent to €385 million.

The retail banking division, which has 6 million clients and 2,200 branches throughout France, withstood the financial turmoil thanks to a sales and marketing drive in which the bank opened 50,000 new cheque and deposit accounts in the quarter, while increasing loans to individuals and businesses.

BNP Paribas's Tier 1 ratio, a key indicator of a bank's financial health, stood at 7.6 per cent at the end of September. The bank will bolster its capital by selling €2.55 billion of subordinated debt to the French Government.

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