Trying to gauge BNP Paribas’s legal risk

In high-stakes poker, going ‘all in’ — betting all your chips on a single hand of cards — is the ultimate power move. Either you’ve got amazing cards, or you reckon your bravado will spook your opponent into folding.

BNP Paribas’s shares have lagged European financial stocks pretty substantially over the past year. Why? Partly on account of a legal risk related to Sudan that the bank is betting will turn out to be a nothingburger. The risk is presented as insufficient even to merit mention in their breakdown of litigation provisions in today’s earnings release.

On pages 134-135 of the full report the French bank tersely says:

BNP Paribas continues to have substantial and credible defences, including the absence of liability and causation under Swiss law which governs these actions. The Bank will continue to defend against them vigorously and strongly believes this result should be overturned on appeal.

This appeal will be filed before February 9, the bank said this week. How much are they betting on this outcome? From afar it looks like they might’ve gone all in.

Alphaville therefore thought we’d poke around to see how strong their hand looks.

What legal risk?

Back in October, MainFT reported on the bank’s stunning New York courtroom loss. Three Sudanese women were awarded $20.75mn for damages caused by the lender’s criminal breach of US sanctions designed to hamper Sudanese dictator Omar al-Bashir’s regime.

The money doesn’t undo the arrests, beatings, rapes or genocide. And for a firm with €97.4bn of loss-absorbing common equity tier one capital, an average $6.8mn per claimant is small beer. It’s microscopic compared even to the bank’s “maximum distributable amount” buffer of about €15bn — the difference between the bank’s CET1 capital ratio and its required CET1 ratio that, if breached, would need to be replenished through equity raises, dividend or tier one hybrid capital coupon cancellations, changes to executive compensation, or changes in bank operating activities. However as MainFT put it:

[t]he trio [of plaintiffs] were among an estimated 23,000 people who have been recognised by a US judge as a certified “class” of refugees and asylum seekers who left Sudan and may be entitled to make claims against the bank.

What happens if we extrapolate 23,000 times $6.8mn?

Sacrebleu! Even after the dollar’s recent weakness, $157bn is a lot more than €94.4bn. It’s more than the bank’s market cap. Does BNP Paribas have a capital problem?

No, says BNP. Or rather non, Non, NON! In fact, according to Jean-Laurent Bonnafé, BNP Paribas Group CEO, “extrapolation is not permitted”.

BNP’s counsel have written a stern letter to the plaintiffs’ lawyers accusing them of misrepresenting the US Court’s orders in asserting that liability for the class had been established. The number of people in the class is disputed. And the legal basis for multiplying the three jury awards across a broader class is something that some experts say is an absolute non-starter. BNP Paribas’ lawyers even cite the Court’s judge directly as saying:

I’m not handling this case as a class case. I’m handling the three plaintiffs that they can resemble others, but I’m not looking at the class. I’m looking at these individuals.

And in his order denying post-trial motions and certifying judgment as final, Judge Hellerstein (yes, the same 92 year-old judge tasked with overseeing Nicolás Maduro’s narco-terrorism trial), repeated that he had “severed the three plaintiffs’ claims from the underlying class”.

Moreover, BNP Paribas reckon they will get even the (tiny relative to capital) $20.75mn award overturned, based — they argue — on a jury verdict that has no basis in law. And this would transform what, without the forbidden extrapolation, would be only an infinitesimally minor capital dent into a true financial doughnut.

So nothing to see here? Perhaps any attempt to extrapolate the average court-awarded damages to the members of the class action pool from which these three cases were plucked is stupidly alarmist?

Well, unfortunately for BNP, not everyone Alphaville spoke to is convinced that this is the case.

Before we dive in, we thought normal readers with busy lives who haven’t been tracking the twists and turns of this case over the years might want a quick recap of how we got here. Everyone else can skip this section and head straight to the numbers.

A catch-up

Around a decade ago, BNP Paribas admitted to structuring payments in highly complicated ways and with no legitimate business purpose to help Sudan, Iran and Cuba evade US sanctions.

This resulted in a massive $8.97bn fine, and saw the resignation of its chair, its CEO, and a slew of other executives at the request of US authorities for what the US Department of Justice called “criminal support of countries and entities engaged in acts of terrorism and other atrocities”.

It looks to us as though BNP expected this hefty fine to draw a line beneath the whole affair.

But genocide has human consequences. And humans — or at least humans residing within the United States — can go to civil courts after they have been wronged. So despite nine years of legal efforts to kill it off, civil litigation from refugees seeking damages from the bank has been making its way slowly through the American legal system.

All allegations of BNP’s direct liability were dismissed years ago. The focus is entirely on allegations of the bank’s secondary liability under Article 50(1) of the Switzerland Code of Obligations, the governing section of the Swiss Code of Law. In this order and opinion, written by the judge back in 2024, we can see that the plaintiffs had to establish, under Swiss Law, three things to secure damages:

(1) a main perpetrator committed an illicit act, (2) the accomplice consciously assisted the perpetrator and knew or should have known that he was contributing to an illicit act, and (3) their culpable cooperation was the natural and adequate cause of the plaintiff’s harm or loss.

The first point is straightforward. The main perpetrator here is not BNP, it’s the Sudanese regime. A campaign of mass rapes, ethnic cleansing, and forced detentions on their part was recognised by the US government back in 1997 — hence the financial sanctions. Tick.

The second point also looks straightforward. BNP Paribas has signed a statement of facts in which it admitted aiding sanctions evasion, and there are a bunch of memos from compliance bods who were dotted around the French bank that raised red flags. And importantly, it agrees that had the matter gone to trial, these facts would have been proved beyond a reasonable doubt. As the judge put it:

BNPP admitted its conscious cooperation. In a stipulated statement of facts supporting its plea of guilty to a U.S. federal prosecution, BNPP admitted that its own employees recognized BNPP’s “central role in providing Sudanese financial institutions access to the U.S. financial system, despite the Government of Sudan’s role in supporting terrorism and committing human rights abuses . . . .” United States v. BNP Paribas, S.A., No. 14-cr-00460-LGS (S.D.N.Y. 2015) . . . As the Second Circuit held, BNPP “conceded that it had knowledge of the atrocities being committed in Sudan and of the consequences of providing Sudan access to U.S financial markets.” Kashef II, 925 F.3d at 56

Tick again.

But the third point, that the culpable co-operation the bank admits to providing was the “natural and adequate cause” of the plaintiff’s harm or loss? That is the tricky one, and one that the judge decided needed a jury to decide upon. And the jury, in October 2025, found in favour of the plaintiffs.

So what *is* the damage?

We can’t pitch in on the rights and wrongs of the different legal arguments. Nor can we call with any confidence the fate of the various actions in train. And chatting with debt and equity investors — as well as analysts who get paid well to actually know this stuff — it seems that we’re not the only ones struggling.

But we do know that BNP Paribas’ ultimate bill will be somewhere on a scale that runs from nothingburger to wipeout. And it’s BNP that can choose whether they want to choose an extreme (without knowing for sure which extreme they’ll get) or opt for the certainty of some kind of settlement.

When the final judgment was delivered in January, BNP Paribas immediately launched an appeal. The case is now heading to the Second Circuit Court of Appeal. If it’s fast-tracked we could get the results sometime in the middle of 2026, though maybe a more realistic timeframe is 8-12 months out.

How much has the bank provisioned against any possible loss? Chief financial officer Lars Machenil told analysts during an October call that the bank had made zero provision in its third-quarter results, and that the bank was confident the case would be overturned on appeal. If Machenil is right and BNP Paribas’ hand is strong, it’s a nothingburger.

At the other extreme, if BNP Paribas was determined to fight each of the individual cases in the class action pool, if there really are around 23,000 of them, and if each of these individual cases resulted in the kind of payouts we’ve seen in the three bellwether cases, the potential payout would be, well, devastating.

The market has, so far, priced in something between the two extremes. When the October judgment came in, the stock fell 9 per cent:

Almost $8bn was lopped off the bank’s market cap on the first day of trading. The next day it fell a further $1.8bn. The drop occurred in the context of a small rally across European bank stocks.

Deutsche Bank downgraded the stock to a Hold as “a consequence of this overwhelming uncertainty”. Barclays’ European banks analyst Flora Bocahut downgraded BNPP to Equal Weight from Overweight, writing that it’s “impossible to quantify any potential impact this litigation could have on BNPP financials”.

It looks like Barclays didn’t get the memo on extrapolation, noting that applying the amount awarded to the three cases to the 20-23k individuals involved “would result in a very significant $120-160bn cost”, though they went on to note a number of caveats.

As already mentioned by us (and repeated ad nauseam by BNP Paribas), the jury wasn’t hearing a class action. So it’s not like losing the appeal on the three cases will necessarily guarantee a $6.8mn payout for every member of the underlying many-thousand-strong class pool. The three cases were specifically severed from the class, remember?

But it’s worth considering why were these three cases severed from the underlying class in the first place. In his 7 January 2026 final judgment, Hellerstein wrote that (our emphasis):

I severed the three Plaintiffs’ claims from the underlying class to serve as a bellwether for possible future trials, and, as counsel considers appropriate, a basis for possible settlement of the claims of the class members. The purpose of a bellwether trial is to “assess the values of the claims at issue [and] develop a relevant body of law . . . ”

. . . To continue to adjudicate cases would risk duplicative litigation and would likely elongate the underlying proceedings to the detriment of the three Plaintiffs and the class members.

This followed the judge urging parties to settle back in November when Bloomberg reported him saying: “I can’t try 23,000 cases, you know”.

Playing the settlement game

So while BNP Paribas may end their losing legal streak with a fabulous victory in the Second Circuit Court of Appeal, or even take up legal arms against an armada of class action pool members and fight to the last, they may well have quietly moved on to play the settlement game.

After all, as our colleagues on Lex have written, pretty much all big class action banking litigation cases are settled out of court.

If BNP were pursuing a settlement, experts have led Alphaville to believe that this might begin after an appeal is launched and the appellate issues have been identified. So around about now, or at least pretty soon. Furthermore, we understand that any settlement discussions would be covered by a settlement confidentiality provision. As such, if there were settlement discussions, neither side would be permitted to talk about them.

“I think BNP would be wrong not to enter a settlement because the other option is too risky,” Jérôme Legras, managing partner at Axiom Alternative Investments — an asset management company specialising in the European financial sector — told Alphaville. “The very simplistic and basic calculation (numbers of class members multiplied by damages awarded), even with a significant haircut, exceeds BNP’s excess capital [such as the MDA]”

How big a settlement are we potentially talking though? We’ve got numbers for Securities Class Action Settlements, care of Cornerstone Research. In 2024 the median settlement for this sort of class action — as a percentage of plaintiff-style damages for banking litigation in general — was 7.3 per cent of claims.

Multiplying this 7.3 per cent general figure by the crazy-high $157bn figure would get us to a $11.5bn settlement. This figure is around three-quarters of 2026 expected earnings, according to Barclays’ equity research.

However, the Sudan litigation isn’t a securities class action case. It’s a mass tort case. And unfortunately we can’t find any good data on median mass tort settlements as a percentage of plaintiff-style damages. Looking at individual cases, payouts for mass torts appear anecdotally smaller — sometimes a lot smaller — than payouts for securities class actions.

For example, 3M in 2023 settled a mass tort class action for $6bn with 250,000 active plaintiffs with hearing injuries — so an average of $24,000. This came a couple of years after some initial bellwether trials awarded plaintiffs anything between $1mn and $77.5mn apiece. If we applied this kind of haircut, BNPP’s settlement suddenly looks a lot more like a nothingburger (albeit one that tastes a bit nasty). Of course, the facts and law of this case are quite different, and we’d love it if someone could point us to decent systematic data.

The plaintiffs might also be keen to settle. “I was a bit surprised that the lawyer for the plaintiff, in an interview just after the decision, kind of made an offer for settlement which I think was a bit on the low side,” Legras told us.

Bondholders? Not bothered.

If there’s one constituency who you’d think would be watching for whiffs of danger it would be creditors. But judging by the price of credit default insurance, they look entirely untroubled by the whole affair:

Low credit default swaps prices could signal that bondholders have taken BNP’s defiant statements at their word, or have performed their own legal due diligence and arrived at the view that the bank has its legal appeal in the bag.

Or they could signal that the bear case for BNP Paribas is an out-of-court settlement that might cost them anything up to a full year’s earnings, and so entirely digestible from a senior creditor perspective.

BNP Paribas don’t have the capital, let alone the MDA buffer, to pay the extrapolated number. So an extension of BNP Paribas’s legal losing streak would be a big deal. But that’s OK. Because, like the big man said, extrapolation is never permitted.