Bloomberg News

RBS Slashes Holdings of French Bonds More Than Southern Europe

December 09, 2011

Dec. 9 (Bloomberg) -- Royal Bank of Scotland Group Plc, Britain’s biggest government-owned lender, is cutting holdings of French government debt more quickly than it is for any other sovereign in the euro region, including the southern nations.

RBS cut its holdings of French government debt by about 2 billion euros ($2.68 billion) to 17.15 billion euros in the nine months to Sept. 30, according to data compiled by the European Banking Authority and published yesterday. It reduced its holdings of Luxembourg’s sovereign debt by 460 million euros during the same period, the next biggest reduction.

RBS’s move highlights how investor concern about firms’ holdings of regional sovereign debt, which has contributed to a 31 percent decline in the Bloomberg Europe Banks and Financial Services Index this year, is spreading from the southern European nations to the core of the euro area. European Union leaders are meeting in Brussels today to hammer out a plan to stop the crisis from worsening.

The spread between 10-year French government bonds and German debt of a similar maturity widened to a euro-era record last month as concern mounted that some of its largest banks may need rescuing after being shut out of the funding markets. The eight largest prime U.S. money-market mutual funds cut holdings in French banks’ securities by 68 percent in November, according to an analysis of fund disclosures by the Bloomberg Risk newsletter.

Through the use of credit-default swaps and other strategies, RBS’s net holdings of French debt shrank by 4.27 billion euros, just shy of the 4.32 billion euro net reduction in Italian government bonds, the data show.

RBS Group Finance Director Bruce van Saun highlighted the bank’s reduction of southern European debt, including Italian bonds, on a Nov. 4 earnings call, though he made no mention of its French holdings. RBS cut its southern European debt by 75 percent, or 3.2 billion pounds, on a net basis in the first nine months, van Saun said on the call.

An RBS spokesman, Michael Strachan, declined to comment.

--Editors: Steve Bailey, Keith Campbell

To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net; Radi Khasawneh in London at rkhasawneh1@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net


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