Natwest Cuts Investment Banking Arm

British high street bank National Westminster yesterday radically reduced its investment banking activities, with the sale of its equities businesses and the closure of NatWest Markets.

NatWests retrenchment followed a similar move by its British rival Barclays Plc which is in the process of selling what remains of its BZW investment banking arms own equities division.

NatWest confirmed it was selling its pan-European equities business to US bank Bankers Trust and its US and Asian equity derivatives business to Germanys Deutsche Morgan Grenfell for a total of 179 million pounds ($302 million).

Its equity and equity derivatives businesses as a whole produced income of 230 million pounds in the 10 months to the end of October, it added.

 

The banks chief executive Derek Wanless said NatWest Markets in difficulty since discovering a 90 million pound loss in its interest rate options division in February would make a pre-tax loss of 210 million pounds for the year.

But Wanless said the performance of the groups remaining businesses to the end of October was ahead of 1996 and added it was positioned to deliver substantial improvements in performance in 1998 and thereafter.

He even raised the prospect of NatWest returning capital to its disgruntled shareholders after reviewing progress during 1998.

The sale of the equities division had been widely expected, but the losses further underlined the problems NatWest Markets has had in restoring confidence of clients, staff and the markets since the options affair.

Trading in NatWest Markets as a whole has been affected by the uncertainty over the divisions future, particularly in the equities businesses, Wanless said.

He said most of the NatWest Markets loss was attributable to the overall equities business, although some banking source said it was concentrated in equity derivatives rather than cash equities.

NatWest will now be based around four main business units, describing itself as a tightly focused UK-based financial services group with significant market shares in its key business sectors.

In addition to retail and commercial banking, wealth management and global financial markets which specialises in foreign exchange and treasury products the former NatWest Markets businesses will be grouped in global debt markets and corporate global advisory.

NatWest said it had achieved a surplus to the net asset value of 55 million pounds on the sale of the equities businesses, although this was before a goodwill write-off of 65 million pounds.

The total costs of pulling out of equities and restructuring NatWest Markets are expected to total 270 million pounds, the provisions to be be made in 1997.

The group is also talking about selling its Asian cash equities business and has received approaches about its Australian investment banking operations.

It said it would close its U.S. cash equity business and maintain a proportion of its UK equity derivatives book, which would be wound down.

Bankers Trust is buying its independent business consultancy Wood Mackenzie and its UK equity derivatives activities, except for the convertible business, which is being bought by DMG.

DMG said it was paying 50 million pounds for those bits of the business it was buying.

NatWests shares were down 8.5 pence at 876.5 pence at 1333 GMT.