NatWest Group Plc said Thursday it will concentrate its government bond activity on the UK, scaling back in the US and across Europe and reducing trading staff. On Saturday, a spokesperson said via email, "Following a review of our markets business, we are simplifying our structure and proposing to withdraw from European and US primary dealership programs." "The US and Europe remain important markets for NatWest, and these changes will allow us to focus resources on areas where we can deliver the greatest value for customers and support future growth."
It is another step in the long wind-down from the Royal Bank of Scotland era, when the firm sat among the world's largest banks. Before the global financial crisis, RBS held the No. 1 spot among primary dealers for French government bonds.
For more than 20 years, the bank had been authorized to buy French and German sovereign debt, but its allocation in both markets has shrunk in recent years.
In France, NatWest ranked sixth among primary dealers in 2019 and has not appeared in the top 10 since.
The revenue trend points the same way. During the first half of 2019, rates produced £326 million ($431 million) at NatWest Markets, while fixed income totaled £52 million in the comparable period this year. For 2023, fixed-income revenue totaled £135 million, lagging the currencies and capital markets businesses. The bulk of NatWest Markets' earnings comes from corporate lending, which has helped offset weaker performance in European government bonds.
NatWest is also consolidating its markets operation by merging the fixed income unit with the private financing business. Stuart Connell, who ran private financing, will lead the combined group, said a person familiar with the matter.
Where a bank withdraws tells you which businesses stopped paying. Market Briefs covers banking strategy free every weekday.
About 10 traders were told on Thursday that their roles were being cut, according to people familiar with the situation. Some were offered other positions within the bank, though not all accepted, the people said.
There is a trade-off. Giving up a broader role as a primary dealer in government bonds could reduce the bank's visibility into new deals, which can make clients less inclined to bring it business. "Being more focused on the UK market makes a lot of sense," said Berenberg analyst Michael Christodoulou.
NatWest remains active at home. It has been appointed a lead bookrunner for Scotland's planned first bond sale, known as kilts, and was chosen to lead the UK's first digital bond pilot. The gilt trading team, however, has seen departures in recent months, including its leader, Vishal Sheth, who left in July.
Bottom line for your wallet: NatWest is tying itself more tightly to UK rates and funding conditions while stepping back from the information edge that comes with primary dealer status abroad. If you follow UK-focused lenders or liquidity around gilt-linked deals, this home-market pivot and who is running the combined fixed income and private financing unit are worth watching.
Retrenchment from bond markets affects liquidity for everyone. Join Market Briefs free and follow the consequences.
