The Royal Bank of Scotland Group plc (RBS) is scaling down its interest-rate trading business which recently lost its competitive edge. Escalation in regulatory as well as operating costs have squeezed the profitability of this unit and forced the banking behemoth to take such a decision.
The British bank’s decision to trim both rates prime broking and rates over-the-counter (OTC) clearing business indicates its withdrawal from the investment banking business. This underlines the bank’s present focus on de-leveraging its balance sheet, improving capital ratios and boosting profitability.
RBS offers margin consolidation and credit efficiency services to its clients through rates prime broking business. On the other hand, rates OTC clearing business helps customers clear interest rate contracts related to OTC transactions.
The initiative, started four years back to boost the interest rate trading business, has finally been put on pause by the bank. Three years ago, the OTC derivatives clearing division of RBS was integrated with the futures businesses for providing better services. However, the bank failed to boost this line of business.
In recent times, many changes in OTC trading and clearing have been noticed in the US. In order to get accustomed to new regulations and compete better with other important rivals such as JPMorgan Chase & Co. (JPM), Morgan Stanley (MS) and Credit Suisse Group AG (CS), RBS requires to focus on its more profitable businesses. Thus, the UK bank has decided to scale down its interest-rate trading business for the time being.
Notably, another British bank Barclays Plc also downsized its investment banking operations amid criticisms of benchmark interest rate manipulation as well as a drastic fall in global fixed income trading business.
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