Royal Bank of Scotland Group Plc, the British lender scaling back its investment bank after receiving a government bailout, sold its equity derivatives and structured products unit to BNP Paribas SA. (BNP)
“The proposed transaction is in line with the strategic repositioning and de-risking of the markets division of the RBS Group as announced in 2013,” RBS said in a statement.
RBS said it’s exiting all structured products and equity derivatives in June, citing high capital costs and expenses. Today’s sale is expected to transfer risk management of as much as 15 billion pounds ($25 billion) of liabilities, according to the Edinburgh-based lender. The sale price was “not material,” it said.
Increased regulatory scrutiny of structured products, which have faced criticism for being opaque and complex, is making the notes more expensive, forcing issuers to become either leaner and more efficient or retreat from the business. Banks create the notes by packaging debt with derivatives, typically options, to offer customized bets to retail investors while earning fees and raising money.
BNP Paribas is among lenders expanding its business for equity derivatives which are packaged into structured notes. The Paris-based firm signed an agreement to take on 12.5 billion euros of derivatives business from Credit Agricole SA in October.
Dutch lender Rabobank Groep said it was closing its equity derivatives unit in March because new regulations for selling structured notes to wealthy individuals involve increased costs. Switzerland’s Basler Kantonalbank said in June it will issue no more notes because the rules reduced profitability.
Issuers are expecting more disclosure requirements for the securities after the U.S. Securities and Exchange Commission asked banks to divulge the initial value of their notes, prompting European authorities to say they are considering similar measures. Note values are generally lower than the issue price because of underwriting fees, hedging costs and other expenses to create and market the securities.
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