January 13, 2017 / 9:52 AM / 9 months ago

Exclusive: Credit Agricole exits government bond dealer roles in Austria, Ireland

Logos are seen on a Credit Agricole branch in Paris, France, August 4, 2015. REUTERS/Stephane Mahe/File Photo

LONDON (Reuters) - Credit Agricole’s investment banking arm said on Friday it had decided to cease acting as a primary dealer in government bonds for Austria and Ireland, and in treasury bills for the Netherlands.

The bank is the latest to have given up primary dealer roles in Europe, a trend that threatens to increase liquidity constraints and could eventually make it more expensive for some countries to borrow.

The bank reviewed its government bond business to take account of the impact of new regulations on banks’ balance sheets and profitability, a spokeswoman for the bank said in an emailed statement to Reuters.

“Credit Agricole CIB remains committed to the Government Bonds business. This activity remains a core business of the bank and is part of its fixed income franchise,” she said.

Of the other investment banks to have taken similar decisions, the most notable was Credit Suisse, which in 2015 pulled out of making markets for most European countries.

Societe Generale withdrew from the UK later the same year, ING quit Ireland, Commerzbank left Italy, and Belgium did not re-appoint Deutsche Bank as a primary dealer and dropped Nordea as a recognized dealer.

COST/BENEFIT CALCULATION

“It is another mid-sized player leaving this sector,” said a rival banker who manages government bond transactions. “Shrinking balance sheets are forcing many banks to re-examine whether or not they can stay in this space. The competition is diminishing.”

Primary dealers are charged with buying government bonds directly from a country’s debt management office and selling them on to investors in the market.

They are typically also entrusted with maintaining secondary trading activity, which entails holding a portion of the government bonds on their balance sheets for a period.

With regulators keen for banks to reduce the size of their balance sheets, many are having to reconsider whether this activity is worth the cost.

Government debt officials have taken note and some have had to adapt to address the issue.

Belgium’s head of debt, Anne Leclercq, said in November that the country was selling more to hedge funds in bond syndications to allow them to fill the role of providing secondary trading activity.

Reporting by Abhinav Ramnarayan; Editing by Kevin Liffey

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