P&M Notebook: what’s a bank to do?

If you ran RBS, how would you go about getting the bank on track?

  • By Owen Sanderson
  • 17 Jul 2017
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One answer is, leave the whole miserable mess and go do something more lucrative and less painful.

That was Stephen Hester’s approach, when, sick of the politics and sick of the public self-flagellation, he left the firm to run insurer RSA. And that of John Hourican, who found rebuilding Bank of Cyprus a better bet than trying to justify RBS’s need for an investment bank.

But for the capital markets team today, they have a dilemma.

There’s clearly a resilient franchise hiding under the last several years' declines in morale — and, actually, in the last couple of years there’s a marked spring in the step of the “NatWest Markets” bankers. They’re turning up in surprising places — bidding aggressively to finance Italian portfolio sales for example — defending their turf in regular bond and loan businesses.

Hiring for the franchise, though, is still going to be a challenge. Some banks can rely on the CV star quality of their reputations to attract bankers — money remains important, but a spell at Goldman or JP Morgan is never going to detract from one’s resume — while others can throw cash at the problem, or dangle other merits, such as job security or working conditions.

For RBS though, bankers really have to buy into the bank’s turnaround story. Would-be NatWest bankers will want a stack of cash — which the state-owned bank will have to hand over in salary form, rather than bonus — as well as reassurances that the last few years of cost-cutting are indeed over and the bank is going places.

That’s a difficult reassurance to give when the bank is still 73% state-owned, when it has just settled a $5.5bn RMBS case, and when it has another multi-billion legal challenge from the US Department of Justice hanging over it.

Anyway. Notwithstanding all of that, the bank has been hiring. After a two day rumour binge, in which UBS’s James Marriott was said to have taken a job as head of FIG origination at RBS while still being most definitely at work at UBS, his hire was confirmed n Friday morning, completing the bank’s FIG rebuild, which included the rumoured-to-be expensive hiring of Chris Agathangelou to run FIG syndicate.

The move makes some sense. Marriott’s UK and Irish client base (his role before becoming EMEA FIG head at UBS) fits well with RBS’s much touted UK focus, and with FIG bankers in the two seats above him as well, perhaps a switch of roles would have offered promotional opportunities. Sources said he’s well liked by RBS treasury too — an essential part of the role.

But questions remain about whether RBS’s intentionally narrow remit of UK clients, and supporting them overseas, can feed capital markets bankers used to a more varied European diet enough business. In downturns, too, the bank’s forced reliance on high salaries (the UK government declined to authorise a 2x bonus cap, though it voted in favour at Lloyds) will squeeze profitability.

Also getting back on track is Barclays, which has been hiring in European ABS sales and trading, an area which it slashed in August 2015. But in a sign of the times, the two hires are at vice-president level, while the initial cuts round saw three managing directors go and research shut down entirely. It’s good to see hiring, but the approach seems to be more about fleshing out the broader credit desk (which swallowed what was left of the ABS franchise two years ago) with some specialists, rather than going back in with all guns blazing.

That’s a stark contrast to the macro business, where Barclays has been luring managing directors rates and FX specialists from the Street’s glitziest houses, on numbers reputed to be munificent. A sales head like Filippo Zorzoli, who headed rates sales at BAML and will run macro distribution for EMEA and APAC and solutions sales globally at Barclays, does not come cheap. The bank isn’t done yet, with another five or so senior hires into the business to come. A headhunter, with the moderation and sobriety common to the profession, describes rates traders “trying anything” to get their CVs into investment bank boss Tim Throsby

Barclays did, as GlobalCapital reported the previous week, hire Morgan Stanley’s Cecile Hilary. Hillary, a FIG banker with a securitization background, will be head of asset-backed financing, reporting into the bank’s markets business through the “Financial Resource Management” division. Hillary, GlobalCapital understands, is mandated to build a business, but the question for Barclays should be whether it’s too late to force its way into the portfolio financing game.

Securitization bankers at the top US firms (most notably Hillary’s old shop) have swept up most of the biggest public legacy portfolio financings, while lots of other firms, from Lloyds to Natixis to HSBC and BNP Paribas, have retooled their approach to securitization around the far more lucrative legacy financing business rather than FIG-originated flow deals.

But while some jurisdictions, notably Italy, are just picking up, lots of the legacy dealflow in the UK and Ireland, Barclays’ strongholds, has already traded out of the banking system.

It’s also time to look (again) at bank quarterly reporting. The US banks are releasing their Q2 numbers this week, with JP Morgan and Citi kicking off last week. Conditions seem benign in the markets for the most part, with functioning M&A activity, an open IPO windows. Early indications look excellent — JP Morgan is up across all three IB products, and 29% up in ECM, while Citi is also up everywhere, with a 32% boost in advisory and a massive 70% in ECM.

The fixed income markets line, though, which remains the real revenue engine at both firms, looks weaker, against a very high comparison base in 2016, with Citi down 6% and JPM down 19%.

Of particular interest will be Goldman, where a misstep in credit last quarter, and a Goldmanesque refusal to explain, gave plenty of ammunition to critics of the squid. But you’d be foolish to bet on another failure from that quarter when it reports on Tuesday.

  • By Owen Sanderson
  • 17 Jul 2017

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 29,333.03 101 7.94%
2 JPMorgan 27,208.83 91 7.37%
3 Barclays 23,714.00 55 6.42%
4 Bank of America Merrill Lynch 20,332.10 65 5.50%
5 Goldman Sachs 20,005.21 49 5.42%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Mizuho 299.85 1 21.73%
1 ING 299.85 1 21.73%
1 Commerzbank Group 299.85 1 21.73%
1 BNP Paribas 299.85 1 21.73%
5 UBS 60.22 1 4.36%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Goldman Sachs 1,607.28 5 23.03%
2 Credit Suisse 1,301.65 4 18.65%
3 UBS 970.80 3 13.91%
4 BNP Paribas 522.35 4 7.49%
5 SG Corporate & Investment Banking 444.17 3 6.37%