NatWest Markets traders had a bad quarter, but are still getting paid

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So much for rates traders having an excellent third quarter. No sooner did Deutsche Bank's banking analysts declare that European rates businesses had a standout three months and that banks with strong rates franchises should therefore all perform well, than NatWest Markets - known for the historic strength of its rates trading business - has turned in a quarter from hell. 

In the three months to October, revenues in  the NatWest Markets (formerly known as RBS) rates business plummeted from £145m in the prior quarter to just £2m. The fall contributed to an operating loss of £193m across NatWest Markets as a whole.

What went wrong? In the statements accompanying the results, NatWest points a finger at a convoluted combination of, 'elevated hedging costs caused by reduced liquidity and wider bid-offer spreads as the market experienced sustained curve flattening across global fixed income markets.' Somehow, JPMorgan - which achieved a 25% year-on-year increase in its fixed income revenues in the third quarter thanks to, 'improved flows in Rates and Commodities,' seems to have avoided these pitfalls.

As the chart below shows, rates revenues at NatWest Markets have always been volatile, but they've never been quite this volatile. The reductions raise questions as to whether the business is suffering as a result of the people who left last year for Nomura, and from the May disappearance of Farzad Kassam, the former co-head of GBP rates trading at NatWest Markets, who quit for hedge fund Millennium Management. 

Even as rates revenues shrivel, however, NatWest Markets still seems to be hiring and still seems to be paying. The ever-illuminating H1B Visa database shows it recruited a vice president (VP) level rates trader in Stamford in July on a salary of $200k. And despite the third quarter loss incurred by NatWest Markets as a whole, today's results show that Q3 spending on pay in the division increased to £159m, up from £120m in 2018.

For the first nine months of 2019 as a whole, NatWest Markets has spent £537m on pay, up from £424m in the same period last year. This works out as around £103k on average for each of its 5,200 staff.

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