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CommentP&M Notebook

P&M Notebook: an RBS revival?

Few banks have been knocked about like RBS — or, since the beginning of the month, ‘NatWest Markets’. So for the beaten up British firm to be making statement hires again is a surprise indeed.

The hire in question is Tom Ritchie, former head of FIG DCM at Credit Suisse, who will be running origination and structuring for the US at the newly rebranded NatWest Markets. One hire does not a strategic pivot make, but it is supposed to be a statement of intent, and Ritchie, perhaps, could bring in a new era for the firm’s US ambitions.

This, one must stress, is not likely to be an era of gung-ho expansion with sights trained on the top of the league tables. It’s only one MD hire, after all.

But coming after years when the bank has pulled back from jurisdiction after jurisdiction, leading wags to dub it The Royal Bank of Shrinkage, it means something. It’s always darkest before the dawn, and so on.

The model looks more like Lloyds than anything else. The UK’s other ward of the state started its US build-out three years or so ago, moving some senior staff over from London and hiring traders and origination people.

The idea wasn’t to compete for US domestic business, but to pitch a US add-on to its existing UK clients – perhaps a US private placement alongside some lending and a bond financing, or co-manager mandate on a Yankee.

RBS, though, starts from a very different place. Up until 2015, it had a pretty serious US business, which it sold almost entirely to Mizuho, the Japanese bank taking the 130 bankers and $40bn of lending commitments as the centrepiece of its growing US strategic investment.

Mizuho is now in the top 10 of US corporate investment grade bond underwriters, having vaulted ahead of many storied foreign firms, like HSBC and BNPP. That kind of assault on the league tables was more available to deep pocketed Mizuho in a way that it never was at RBS, but it surely says something about the quality of the business that it bought.

This week also brought further news of Mizuho expansion, in the form of more tech investment bank hiring on the west coast. Tech M&A seems a world away from the worthy-but-dull participation in investment grade facilities, and it’s a measure of Mizuho’s eventual ambition that it’s pumping cash into this business.

Perhaps it’s yet to bear fruit, but it’s surely lucrative if it does — taking “unicorns” ($1bn+ startups) public is probably the best paid business line in the whole of corporate finance. Deals like Facebook or Alibaba’s IPOs make or break a firm’s budget for the year, and distort league tables around them like black holes. A single top line role can be transformative.

UniCredit's big reveal

We also ought to talk about UniCredit. The big reveal on Tuesday didn’t have any truly transformational ideas. Mustier confirmed that the bank would sell more assets, cut more costs, raise capital, and try to shift some of its non-performing loans.

On other words, more of the same, but better. Within weeks of Mustier taking over as CEO, parts of Pekao and Fineco were sold through accelerated bookbuilds, and the bank has announced several smaller NPL disposals to various firms, ahead of its planned €17.7bn securitization announced on Tuesday.

But the part that the market liked about the UniCredit plan was its lack of external optimism. It’s not assuming any real revenue growth, a steeper yield curve or a sudden upswing in the Italian economy — all the forward assumptions are that life will be tougher for longer.

It is relatively optimistic on regulatory matters — there’s no Basel IV drama included — but that’s consistent with the recent tenor of European policy noises, which suggest no drastic upsurge in capital costs for the banks that are not ‘outliers’ in their balance sheet structure.

On the real revenue drivers, though, Mustier has left real room for upside. Trump and Fed inspired rate rises could easily tilt European banks back to profitability, and there are some signs that loan growth is picking up in Europe’s slower growing economies. The shares are still down 44% from this time last year, but jumped 16% on Tuesday — upside potential is exactly what you need when you’re raising €13bn of new equity.

In regulation, the final week before Christmas can feel like a cold shower on a freezing winter’s morning — the Basel Committee has a habit of releasing major policy statements or consultations shortly before Christmas, a habit occasionally echoed by European regulatory bodies as well.

That’s natural enough — regulators and policymakers want Christmas holidays too — but can come as shock to the system just when one is ready to wind down.

Last week’s major regulatory news, though, was the passage of the French “Sapin II” law, enabling the French banks to start work on their TLAC issuance — and tweaking the treatment of covered bonds.

Crédit Agricole was first off the starting blocks, to be followed by Société Générale. BNPP has the largest volume to issue, so might, thanks to technical, price wider than the others, but the issues so far have been well received.

With that, GlobalCapital wishes you all the best for the festive season. May it be free of regulation and full of good cheer. P&M Notebook won’t be back until January 16, but we’re writing the news all of this week and again from January 3.

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