A leaner RBS could be keener and fitter

The future of Royal Bank of Scotland’s ambition as a global investment bank will be decided in the coming weeks. Don’t write the firm off. RBS was not strong in the threatened business lines anyway. It remains a top player in debt. If it decides to make a go of it, RBS has a good chance of thriving as a debt-based investment bank.

  • 10 Jan 2012
Email a colleague
Request a PDF

The precise degree of Royal Bank of Scotland’s scaleback in investment banking remains to be decided, but scale back it will. Cash equities is likely to go and corporate finance advisory is in the balance.

This will be tough for the individuals involved and will undoubtedly impair RBS’s image and ability to present itself as a global investment bank.

The big question for many in the debt markets will be what effect the changes have on RBS’s bond and loan franchises, assuming that CEO Stephen Hester and his ultimate masters in the UK government decide to preserve those.

For now, that appears to be the plan. RBS insiders insist that rates, FX and DCM are core businesses and will remain so, even if client coverage has to be streamlined somewhat.

This could mean quitting some minor countries and will almost certainly involve closing some national offices, so that those clients have to be covered with suitcase banking.

Asia will be a key test case. RBS has not broken into the big league there, but the market remains strategically very important for any bank with global ambitions, for the obvious reason of Asia’s unstoppable economic rise.



Credible in US

Even more important is the US business, which RBS bankers aver is not for sale. RBS has had considerable success in US capital markets — it was the seventh biggest bookrunner of US corporate bonds last year, and the highest foreign firm apart from Barclays Capital, which bought part of Lehman Brothers. Even the mighty Deutsche Bank came lower, and the once-ubiquitous Credit Suisse was far behind.

In all global investment grade bonds, RBS was 10th — a solid member of the bulge bracket.

Can RBS keep this going, without equities and without — if it comes to that — the pure investment banking division? Or will it be crippled and become a second Lloyds, a major player only in the UK?



New model coming

For some RBS debt bankers, the view is: “Bring it on”. The firm’s new shape, they hope, will be like RBS was before its takeover of part of ABN Amro, only with two additions: a stronger presence in the US and in global transaction banking, which helps cement relationships with corporate clients.

This model has also been compared with the debt-focussed Barclays Capital built up by Bob Diamond before the purchase of Lehman Brothers’ US investment bank in 2008.

Can this approach still work, in these days of global super-banks? The only way to find out is to try, but the circumstantial evidence is strongly in RBS’s favour.

The first thing is that the “one stop shop” argument is as old as the hills. Can you remember a time when heads of DCM or investment banks didn’t brag that their firm was bound to gain market share because it offered a complete service? Yet this claim has failed to pay off as often as it has worked.

Consider a few league tables. In 2011, Barclays Capital (containing US Lehman) was seventh in the Dealogic bookrunner list for global investment grade bonds. In 2008, at the end of which it bought Lehman, Barclays was third. In 2007 it was fourth and in 2006, second.

RBS’s own record tells the same tale about its purchase of ABN in 2007. On the same global bonds league table, RBS went from fifth in 2006 to seventh, sixth, fifth in 2009 — then 12th and 10th.

It seems clear that buying into equities and investment banking has not lifted either bank’s performance in bond markets.



Debt is all you need

What if the equity and IB businesses did help RBS and Barclays defend market shares in bonds that would otherwise have fallen further?

It’s possible, but there is little evidence for this, especially in recent years when M&A, and hence M&A financing, has been low on many corporate agendas.

And look at the famous US bulge bracket. Of the top 10 US bond houses in 2011, nine were in the top 11 for US equity capital markets as well. One wasn’t — RBS. In fact, it was 48th in the US ECM league table, behind such giants as Leerink Swann. So in this market, the bank is already doing fine without equities — better, in fact, than ECM powerhouses Credit Suisse and UBS.

So when an RBS debt banker tells you he or she is quite looking forward to the new order, because then the bank will use its client face time purely to pitch for debt, rates and FX business, don’t look askance. The optimism just might be well-founded.

  • 10 Jan 2012

Bookrunners of Global Covered Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 18 Jul 2017
1 HSBC 7,819.38 34 5.99%
2 Commerzbank Group 6,569.87 40 5.03%
3 UniCredit 6,402.82 51 4.90%
4 Credit Agricole CIB 6,251.64 29 4.79%
5 LBBW 6,101.10 27 4.67%

Bookrunners of Global FIG

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 17 Jul 2017
1 JPMorgan 150,125.79 696 6.45%
2 Morgan Stanley 148,945.43 628 6.40%
3 Goldman Sachs 141,512.99 757 6.08%
4 Citi 139,755.65 854 6.00%
5 Bank of America Merrill Lynch 130,842.74 595 5.62%

Bookrunners of Dollar Denominated FIG

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 18 Jul 2017
1 Citi 46,002.89 257 9.90%
2 Goldman Sachs 45,907.69 242 9.88%
3 Morgan Stanley 45,559.38 178 9.81%
4 JPMorgan 44,542.40 200 9.59%
5 Bank of America Merrill Lynch 42,865.90 179 9.23%

Bookrunners of Euro Denominated Covered Bond Above €500m

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 18 Jul 2017
1 LBBW 5,014.64 17 7.40%
2 SG Corporate & Investment Banking 4,741.46 19 7.00%
3 Credit Agricole CIB 4,590.25 17 6.78%
4 BNP Paribas 4,566.36 14 6.74%
5 Commerzbank Group 4,066.97 16 6.00%

Global FIG Revenue

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 02 May 2016
1 Morgan Stanley 365.83 497 7.62%
2 JPMorgan 332.66 618 6.92%
3 Bank of America Merrill Lynch 299.89 590 6.24%
4 Goldman Sachs 276.71 375 5.76%
5 Citi 264.54 592 5.51%

Bookrunners of European Subordinated FIG

Rank Lead Manager Amount €m No of issues Share %
  • Last updated
  • 18 Jul 2017
1 HSBC 7,627.65 26 6.98%
2 Barclays 5,339.12 17 4.88%
3 Credit Suisse 3,754.01 17 3.43%
4 BNP Paribas 3,630.97 18 3.32%
5 Citi 3,502.60 28 3.20%