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Financials

UPDATE 2-Belgium cuts Deutsche Bank as primary dealer

(Adds official comment, further context)

LONDON, Dec 9 (IFR) - Belgium’s debt management office has axed Deutsche Bank as a primary dealer for 2016 after conducting a performance review of all its market-makers.

With the decision, Deutsche Bank becomes the second high profile bank to drop out of a sovereign primary dealership this year as the industry continues to grapple with the full impact of new regulation on its business.

“Every year the Belgian debt agency evaluates existing primary dealers on the basis of their performance in the current year,” said Anne Leclercq, director, treasury and capital markets at the Belgian debt agency.

“Hereupon it suggested the Finance Minister not reappoint Deutsche Bank as primary dealer for 2016 though they were a candidate also for the coming year,” she said.

Deutsche Bank joins Credit Suisse, which decided to exit all its primary dealerships in Europe in response to a growing burden of international regulation and is also not on Belgium’s primary dealer list for next year.

Deutsche Bank has undergone a dramatic restructuring in recent weeks and carved its investment bank into a trading division and a separate corporate and investment banking business.

One banker covering public sector debt suggested that the decision may have been made after the bank did not pull its weight this year.

“I’d say they were kicked out for not buying the market share in auctions, which is less a ‘Credit Suisse change in strategy’ and more them making the decision not to spend with an issuer that hasn’t mandated them on a deal in years,” he said.

According to IFR data, the last syndicated Belgium trade Deutsche Bank had a role on was in April 2013.

The Belgian debt agency would not comment on the specific reasons behind the decision.

“We evaluate primary dealers on different criteria, primary markets, secondary markets, compliance in market-making, OLO distribution, treasury certificates - it’s a global and extensive evaluation process,” said Leclercq.

The main function of primary dealers is to buy bonds directly from the government, typically via auctions, before selling them on to the wider market.

The Belgian government expects primary dealers to enhance the placing of OLOs, strips and treasury certificates, to ensure the liquidity of these securities and to promote Belgian sovereign debt.

But profitability in bond trading has fallen in recent years due to increased regulation and a difficult market environment.

A Deutsche Bank spokesperson said that the development does not reflect a lessening in the bank’s commitment to the sector.

“Deutsche Bank is a primary dealer in the vast majority of European government bond markets and has one of the highest number of primary dealerships in the industry,” he said.

“We remain committed to the asset class, will continue to make markets in Belgian government bonds as well as those of other European sovereigns, and continue to invest in our rates platform.” (Reporting by Abhinav Ramnarayan; editing by Robert Smith,)

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