Bloomberg News

RBS Hires in Germany as Export Growth Boosts Transaction Banking

April 17, 2013

RBS Hires in Germany as Export Growth Boosts Transaction Banking

RBS, now 82 percent owned by the U.K. government, drew about half of its operating profit from investment-banking activities in 2007. Photographer: Chris Ratcliffe/Bloomberg

Royal Bank of Scotland Group Plc, which closed its German mergers and equities business in a global strategy change last year, is hiring again, citing the strength of Europe’s biggest economy.

RBS (RBS), which cut staff in Germany to about 350 at the end of 2012 from 400 a year earlier, is adding people in transaction services and sales as competition for clients intensifies amid Germany’s resilience to the debt crisis, Ingrid Hengster, the head of the Edinburgh-based bank’s business in Germany, Austria and Switzerland, said in an interview in Frankfurt.

European banks such as RBS, which got a 45 billion-pound ($69 billion) lifeline from the U.K. government during the financial crisis, are seeking to grow their businesses in Germany as firms including Volkswagen AG (VOW) and Bayerische Motoren Werke AG benefit from an economic recovery in the U.S. and export more goods to China. RBS, like many of its rivals, has seen operations shrink in Europe, where a recession has undermined its bedrock lending business.

“Germany is and will continue to be an important market for RBS,” Hengster, 52, said. The decision to exit the deals and equities business “was a global one and was driven by the desire to really stick to the fields in which we have a market- leading position. The impact was digestible. It was a difficult decision but in hindsight it was the right decision.”

Export Powerhouse

Germany is RBS’s largest market after the U.K., and the bank is second behind Deutsche Bank AG (DBK) in the league table for managing the sales of investment-grade bonds, Hengster said.

The bank’s strength in risk management and transaction banking, which facilitates the movement of cash and securities around the global financial system, is helping RBS retain and build relationships with its corporate and financial clients in Germany, she said.

RBS is “one of the top five or six houses” for transaction banking worldwide, she said. “Germany is a natural home for this business because there are so many export-oriented clients.”

German exports probably increased 3.4 percent year-on-year in the first quarter, according to the median estimate of 11 economists surveyed by Bloomberg from April 5 to April 10.

RBS, now 82 percent owned by the U.K. government, drew about half of its operating profit from investment-banking activities in 2007. As the crisis hit the following year, the business lost almost 11 billion pounds. Last year, Chief Executive Officer Stephen Hester eliminated 3,500 investment banking jobs as he closed down major pieces of the division, including the cash equities desk and the M&A advisory business.

Commercial-Banking Flows

An internal analysis this month of commercial-banking flows from Europe to Asia at RBS showed that “Germany is bigger than the U.K., which, looking at the client base, is also natural,” Hengster said, declining to give volumes.

As local firms such as Deutsche Bank and Commerzbank AG (CBK) try to win more business from the so-called Mittelstand, the thousands of small and medium-sized companies that form the backbone of Germany’s 2.64 trillion-euro ($3.5 trillion) economy, RBS is focusing on a core of about 100 corporate clients and about 50 customers in the finance industry.

“We have not changed our client base,” Hengster said, adding that RBS made some adjustments after the bank acquired ABN Amro NV in 2008. When and if changes were necessary as a result of “double exposure,” RBS “did this over time and in close alignment with our clients,” she said.

Crisis Resilience

The German economy is showing resilience to Europe’s debt crisis even as other economies shrink. Industrial output rebounded in February, gaining 0.5 percent from the month earlier, when it contracted 0.6 percent, the German Economy Ministry said last week.

Still, German exports fell 1.5 percent in February, compared with a forecast by economists for a 0.3 percent decline.

“You can’t say everything is stabilizing, it varies sector by sector,” Hengster said. “My impression from speaking to clients is that maybe overall business volume, not just for banks but in general, is a bit slower at the beginning of the year but most clients are quite positive at the moment about their exports, about their order books, so I would say they’re cautiously optimistic.”

Yield Search

Germany is a safe haven for investors, who are tapping corporate bonds and the real estate market in a search of higher returns, said Hengster, who was formerly head of investment banking for Germany at Credit Suisse Group AG (CSGN) and country chief at ABN Amro.

Seven-year euro-denominated bonds of Evonik Industries AG, Germany’s second-largest chemicals maker, yielded 1.82 percent yesterday compared with 1.94 percent on March 26, when the firm sold 500 million euros to investors. Bonds of Volkswagen maturing in March 2021 returned 1.98 percent. Ten-year German government bonds traded at 1.29 percent.

“The bund is of course a safe haven, but if you need better yields then this is the natural alternative,” she said. “This demand I think is unbroken.”

“In terms of real estate, we see good appetite. It’s one of the natural homes you can go to if you don’t see other alternatives. If you compare the German hotspots with international locations, it’s still not expensive.”

Hengster said that while there’s a risk the market may overheat, the more cautious approach to real estate financing in Germany means there won’t be a bubble.

“The search for yield is enormous,” Hengster said. “Everybody, including corporates, when they do bonds and don’t need it immediately, then of course they have the question of what do they do with the money. It’s a big topic. For institutional investors as well as I would say private people.”

Hengster said she doesn’t fear a breakup of the euro.

“When I speak to business leaders, most say they don’t fear at the moment or any longer that this could fall apart because there’s a huge desire to keep the euro area together,” she said. “We’ll see bumpy phases, definitely, but in the mid to long term” there’s a political will “to get out of this crisis. Politicians are definitely doing the right thing.”

To contact the reporter on this story: Angela Cullen in Frankfurt at acullen8@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net; Tim Quinson at tquinson@bloomberg.net


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