Equities under fire at NatWest

Natwest Markets' equity business will be at the centre of the wide-ranging strategic review ordered by its parent company, National Westminster Bank.

NWM insiders believe that the market making and distribution elements of the equity operations are most at risk, since they appear to be incompatible with the parent bank's ambitions to develop high-value, niche businesses.

The bank has not ruled out sweeping reductions in the size and scope of the equities business in the pursuit of better long-term returns. The derivatives operations could be subjected to a similar scaling back.

NatWest believes it is important to have a presence in both equities and derivatives to support the investment bank's other activities. However, these could be restricted to the main financial markets and offered on a significantly reduced level.

One key aspect of the review will be to assess which parts of the equities and derivatives operations can be delivered more profitability by contracting them out to other suppliers.

When NatWest issued a profits warning last week, the equities business was singled out as one that was not yet delivering the required level of performance.

This underperformance is attributed to the extensive investment in building up the sales and trading operations.

An NWM spokeswoman could give no insight into the direction the review of the investment banking business is taking but insisted that the equities operations had a bright future.

"Our equity business is very strong," she said. "We have been investing in it and believe that investment will be profitable in the long run."

However, others are less optimistic. A key element of the review will be a clearer definition of profitability. NatWest is keen to maximise its returns on capital employed and will not tolerate underperforming assets.

Already the big-ticket corporate lending business has been identified as one that does not fit into the vision for NWM's long-term strategy since returns are poor.

The same accusation could be levelled at the market making activities, where the spokeswoman admitted margins were slim. One of the justifications for maintaining a significant equities presence is that it is seen as a prerequisite for competing in the international market place with the big US and Continental banks.

NWM insiders now believe, however, that there is growing disenchantment at head office with the notion that size is the key to long-term profitability. But they accept that there is a continued commitment from the parent bank to develop a profitable investment banking business.

The global debt and financial markets businesses, treasury and corporate advisory businesses are all regarded as integral to the investment bank's future. All the recently acquired investment banking businesses are therefore seen as secure.

It is also accepted that NatWest will impose a more disciplined approach to the management of the investment banking business.

The weaknesses in risk management and control were clearly identified by NWM's surprise pounds 77m loss in its interest-rate derivatives arm, which prompted the latest review.

Not for turning, page 3

Start your day with The Independent, sign up for daily news emails
Sport
sportSo, how closely were you paying attention during 2014?
Arts and Entertainment
Dennis speaks to his French teacher
tvThe Boy in the Dress, TV review
News
One father who couldn't get One Direction tickets for his daughters phoned in a fake bomb threat and served eight months in a federal prison
people... (and one very unlucky giraffe)
Arts and Entertainment
Joel Edgerton, John Turturro and Christian Bale in Exodus: Gods and Kings
film
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
News
i100
Arts and Entertainment
The Plaza Theatre in Atlanta, Georgia was one of the 300 US cinemas screening
filmTim Walker settles down to watch the controversial gross-out satire
Arts and Entertainment
Amy Adams and Christoph Waltz in Tim Burton's Big Eyes
film reviewThis is Tim Burton’s most intimate and subtle film for a decade
Life and Style
Mark's crab tarts are just the right size
food + drinkMark Hix cooks up some snacks that pack a punch
Arts and Entertainment
Jack O'Connell stars as Louis Zamperini in Angelina Jolie's Unbroken
film review... even if Jack O'Connell is excellent
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

Aren’t you glad you didn’t say that? The worst wince-and-look-away quotes of the year

Aren’t you glad you didn’t say that?

The worst wince-and-look-away quotes of the year
Hollande's vanity project is on a high-speed track to the middle of nowhere

Vanity project on a high-speed track to nowhere

France’s TGV network has become mired in controversy
Sports Quiz of the Year

Sports Quiz of the Year

So, how closely were you paying attention during 2014?
Alexander Armstrong on insulting Mary Berry, his love of 'Bargain Hunt', and life as a llama farmer

Alexander Armstrong on insulting Mary Berry and his love of 'Bargain Hunt'

From Armstrong and Miller to Pointless
Sanchez helps Gunners hold on after Giroud's moment of madness

Sanchez helps Gunners hold on

Olivier Giroud's moment of madness nearly costs them
A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

Christmas without hope

Gaza fears grow that conflict with Israel will soon reignite
After 150 years, you can finally visit the grisliest museum in the country

The 'Black Museum'

After 150 years, you can finally visit Britain's grisliest museum
No ho-ho-hos with Nick Frost's badass Santa

No ho-ho-hos with Nick Frost's badass Santa

Doctor Who Christmas Special TV review
Chilly Christmas: Swimmers take festive dip for charity

Chilly Christmas

Swimmers dive into freezing British waters for charity
Veterans' hostel 'overwhelmed by kindness' for festive dinner

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect