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Whispers from the Euromarket Confessional: NatWest Markets Still Floundering -- What's Next?

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By Ian Kerr
Special to


NatWest Markets

. Talk about being used as cannon fodder or as the ingredients for steak tartare. "Employee morale at NatWest Markets has the same comfort feeling as a 24-hour diaper," commented a New York government bond trader.

Can NatWest Markets rise from the ashes? Will a rich and sympathetic white-knight nanny come to change the aging diaper? How would the bank respond to new care and attention, or is it already too set in its ways?

Observers aren't sure. NWM may look more and more like a suitable case for treatment, but the parent,

National Westminster Bank

, remains mega-rich thanks to years of skimming huge spread margins between interest paid on depositors' accounts and interest payable on bank loans. "Even

Bonnie and Clyde

wouldn't have bothered to rob banks if they had seen NatWest's margins," commented one former criminal doing a 20-year stretch in

Barlinnie Prison

in Glasgow.

This week the remnants of NatWest Markets hung themselves out to be roasted in public again. First, the Far East operation (yes, NWM does have one) announced that they were dismissing 10% of the local staff. Big deal or a big yawn? Regrettably neither. The staff reduction involves no more than 11 or 12 individuals of such middle- to lower-order status that their parents probably wouldn't call if they had been missing for a year.

Second, there was an imbecilic story in the London

Evening Standard

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saying that NWM might be about to close down large parts of its international bond-trading operations. What a pile of horse-whoopsy. Shame on the

Evening Standard

, which once commanded a serious audience and has now demeaned itself to the highest or lowest tabloid levels. Will we soon have an "

Elvis Presley

promoted to partner at

Goldman Sachs

" story? These days City commentaries in the


are as reliable as

Tiger Woods


Royal Troon


What are the remaining options open for the NatWest Markets international (global would be exaggeration) fixed-income group? Look at the recent history. It's not a pretty sight. When former Chief Executive Martin Owen, summarily dismissed last March, took over in 1992, I argued that there were more also-rans in the NWM bond group than in a good day's racing in Kentucky. Owen agreed, but I was never sure that he knew a bond from a bund or a

Salvation Army

band -- in which he himself played every weekend.

However, Owen, bless his cotton socks, was never more than an apple sort of the perfect strudel. He knew that his bond operation in 1992 was pathetic, perhaps one of the weakest groups intellectually ever assembled in the Euromarkets. But Owen wouldn't kick butt or wield the big chopper -- such was his

Onward Christian Soldiers


Instead, he left the long-overdue crucifixions to Chip Kruger and Gary Holloway of

Greenwich Associates

, which Owen and NatWest Markets had acquired in 1994. This was a brilliant strategy. Greenwich was a genuine class act (

Union Bank of Switzerland

in the U.S. had salivated over the firm but had balked over the asking price) and the acquisition was greeted with much acclaim in the Euromarkets.

Greenwich was supposed to be NWM's bond salvation and its leader to a new promised land full of juicy primary market mandates and wider margins. But while Owen fell first among interest-rate option thieves and then by the wayside, what happened to Kruger and Holloway, the new NWM fixed-income standard bearers? Were they mugged on their way to pick up the pieces of the London bond division? Were they too busy counting the tens of millions of dollars which they had received for their personal shareholding in Greenwich? Perhaps they were so confused by the bureaucracy of National Westminster Bank they opted to moonlight for

J.P. Morgan

or -- God forbid --

Smith Barney


Forget the horseplay and the catcalls. It's high noon at the NWM bond group. There's not much support for Marshals Kruger and Halloway. Owen is long gone to play in the band. The National Westminster Bank main board are like turkey awaiting their Christmas calling. The NWM Chief Executive (very temporary we hope) Derek "Useless" Wanless thinks that bond duration is a prison sentence. Euromarket folks have forgotten when NWM last lead managed a bond issue.

Marshals Kruger and Holloway need to act fast. Thanks to kind blind markets NWM has been able to tread water but the bond group still carries more passengers than a cross-channel ferry.

In fact the solution is relatively straightforward, so here is some free advice for Marshals Kruger and Holloway. The U.S. operation of NWM can simply be modeled on Greenwich, which is continuing to run as smoothly as a Swiss train.

The London trading operation shouldn't be closed down as the nanf

Evening Standard

suggested. Instead it should be selectively expanded. Successful proprietary trading, which should become the core of NWM's fixed-income business, relies on the traders' information flows to identify the best international arbitrage opportunities. If you want to know how it's done, just look at the example of "Sugar" Myojin's proprietary trading group at

Salomon Brothers

in London.

While trading can be selectively expanded, the sales force in London -- which is a lost cause anyway -- can largely be kicked into touch. Who needs a sales force when you have no primary flow? Next question please.

NWM's sole primary market concentration should be on structured products where the bank can at least claim some experience. Aim at completing one per month rather than two per year. Don't try and compete with



SBC Warburg

in "vanilla" primary issues or you will end up on Boot Hill. Do try and hire a world-class Euromarketeer to lead the London group. Edson Mitchell isn't available but try and steal someone from Merrill Lynch or

Morgan Stanley

. When they ask why they should move, try and appeal to the same spirit that had people queuing up to become



Make a public announcement that the fixed-income group faces a glorious future. Then go to the nearest church and pray that the National Westminster main board doesn't sell itself or you down the river.

Ian Kerr, an expert on the securities industry, is a London-based contributor to