RBS Securities, the investment banking and brokerage unit of Royal Bank of Scotland, is looking to add trading and sales professionals and strategists specializing in Latin American markets, according to senior fixed-income officials.
While the firm's parent has a global operation that includes a number of emerging markets, the Stamford, Conn., brokerage business will focus its expansion efforts initially on Brazil.
"We see this as an evolving opportunity for us. Geographically it is in our backyard," said Rich Tang, RBS Securities' head of fixed-income sales in the Americas. His firm views Latin America as "a true growth area."
Tang and Scott Eichel, global co-head of ABS and MBS and head of credit trading at RBS, as well as Michael Lyublinsky, co-head of global banking and markets in the Americas, have been busy restructuring its fixed-income business.
"We have been doing this for the better part of two years and have made strong progress," Tang said.
Like many other Wall Street firms, RBS Securities gets a significant portion of its investment banking earnings from fixed income where much of the emphasis is on market making.
Tang estimates that on Wall Street more than 60% of total investment banking and trading revenues are related to fixed income.
He said the draw to emerging markets in Latin America is related to the rapidly growing economies and capital markets there. "These markets have become more sophisticated," Tang said.
That rapid growth has attracted debt and equity investors, and RBS hopes to serve as a bridge between institutional investors and Latin American companies raising money.
Brazil expects to report that its economy grew 5% this year, according to the CIA World Factbook. The U.S. State Department said that Brazil's gross domestic product shrank 0.2% last year after expanding 5.1% in 2008 and 5.7% in 2007.
Agriculture, mining, manufacturing and the service sector are the biggest contributors to Brazil's economic output.
The country, which has investment-grade status, has built up its foreign reserves and reduced its debt burden — factors that may be drawing investors' attention.
Other Wall Street firms have set their focus on Brazil. Evercore Partners announced in September that it had bought a stake in G5 Advisors to expand merger and acquisition advisory work there.
So far this year, Brazilian companies have raised over $25 billion through debt sales, versus $6.5 billion for all of last year and $10.9 billion for all of 2008, according to Thomson Reuters.
Top banking firms in the Brazilian debt underwriting business include HSBC, JPMorgan Chase, Banco Santander, Citigroup, Goldman Sachs, Bank of America Merrill Lynch, Deutsche Bank and Itau Unibanco.
One of the first steps in expanding into Latin America took place in August, when RBS hired Charles Achoa as head of Latin American debt capital markets.
Its fixed-income business includes high-grade and high-yield underwriting, foreign exchange, and asset- and mortgage-backed securities. It is also involved with rate products and, as one of the Federal Reserve Board's primary dealer firms, is an active market maker in Treasurys.
RBS' North American fixed-income business has its roots in Greenwich Capital Markets, a firm founded in 1981 and acquired in 1996 by National Westminster Bank, which Royal Bank of Scotland took over four years later.
An April 2009 rebranding retired the Greenwich Capital name.
Specialty areas like rate- and MBS products are "in the DNA of the firm," Eichel said. As RBS restructures its fixed-income business, "we want to continue to maintain and defend our franchise."
Eichel himself is a relative newcomer to RBS.
Before joining the firm in 2008, he co-headed RMBS and ABS trading as a managing director at Bear Stearns. He was one 17 professionals who joined RBS from that firm two years ago.
The MBS expansion continued with the hiring of three veterans. In July, RBS said it had brought on Sean Whelan from Credit Suisse and Colin McGahren from Deutsche Bank for its mortgage- and ABS sales team, as well as Brian Song from Nomura Securities as head of agency pass-throughs.
In May, the firm hired Ed Marrinan from AllianceBernstein as head of U.S. macro-credit strategy, Ian Jaffe from Cantor Fitzgerald as a managing director covering banks and financial institutions, and Seth Levine from Cantor Fitzgerald as a senior vice president covering insurance companies.
Tang said the process of adding specialists to the credit and mortgage business "has largely been done," though Eichel said their firm is "always looking to expand our distribution, bring on additional traders and hire more strategists."
The two officials said much of the fixed-income revamp was a response to broader changes in the industry.
Though there is plenty of income to be generated from underwriting high-yield and high-grade debt, mortgage debt securitization has dropped dramatically since the start of the credit crisis, they said, so RBS has increased its role as a market maker — processing mortgage-backed trades for investors — where it can readily find a buyer.
Bid-offer spreads have narrowed from their historic wide levels during the crisis, but Eichel and Tang — echoing executives at other Wall Street firms that are loath to take on much inventory — say they are more in the "moving business" as opposed to the "storage business" when it comes to products such as MBS.
"The emphasis is on trading and resecuritizations," Tang said.
Though underwriting securities backed by home loans has fallen off, RBS has kept itself busy underwriting high-yield and high-grade corporate debt.
Also, it has been busy as an underwriter of ABS pooling credit card receiveables, and student and auto loans. This year it brought to market a multi-borrower CMBS bond — the first done in two years — and it expects to do more such work next year.
RBS executives said they expect the firm's rate business to stay busy. Tang and Eichel say Treasury issuance has climbed steadily since 2008 — it topped $1 trillion both last year and this year and is expected to do so next year — and volatility has kept investors active, which in turn keeps RBS pros busy.
"The Treasury market has become a much bigger part of the rates market," Tang said. "With so much supply and uncertainty about Fed policy, it has created a lot of volatility. Europe is also a major factor" in that volatility.
