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By Patrick Graham and John Geddie
LONDON, June 24 Banks are being squeezed by
increased regulation and lower margins to the point of giving up
previously profitable primary dealerships in Europe's biggest
government bond markets, a senior official at French bank BNP
Paribas said on Tuesday.
Primary dealers are one of the building blocks of government
debt markets, used by debt managers as a sales conduit to funnel
in bids from thousands of funds and other institutional
But a primary dealership also comes with substantial costs
and obligations for each bank and, along with many other chunks
of banks' markets operations, has been squeezed by an era of
ultra-low interest rates, greater regulation and lower trading
"The fundamental economics of the business have become
challenged," Martin Egan, global head of primary markets and
origination at BNP Paribas told a panel at a Euromoney bond
market conference in London.
"Longer term, you will see fewer banks involved in euro zone
government primary dealerships."
Last summer, Royal Bank of Canada shut down its European
government bond business after just three years of operation.
Others, such as Swiss bank UBS have withdrawn from certain
dealerships, citing regulatory pressures.
While Egan says BNP Paribas is committed to its dealerships,
he said other banks were struggling to maintain the
infrastructure to make markets, and are faced with stricter
compliance and higher capital costs for holding inventory and
"Certain banks will stay in and get better and serve their
clients well but others won't," he said, suggesting that the
number of dealerships, typically 10-15 most markets, would be
trimmed. "For me 10 is around the right number to get good
liquid markets and an appropriate revenue pool."
He said the withdrawal of some banks would mean governments
could lose liquidity in their markets and face higher funding
costs. Sovereign debt managers appearing on the same panel did
not seem overly concerned.
"Banks must make a profit and loss calculation, if they make
a small loss they must decide if it is worth it," said Niek
Nahuis, the head of the Dutch State Treasury Agency.
Maya Atig, deputy chief executive at the Agence France
Tresor, said: "It is still an attractive business, each primary
dealer tends to develop his own model and this model can change
from one year to another."
"It induces us to have a more direct relationship with
investors and adapt to the fact that they will be more
cautious at auctions."
(Reporting by John Geddie and Patrick Graham; Editing by Robin