* French bank halts market making in Austria, Ireland
* Bankers say primary dealership uneconomical
* Austria shrugs off loss of bank from roster
By Michael Turner
LONDON, Jan 13 (IFR) - Credit Agricole has joined a growing
number of banks exiting eurozone sovereign primary dealerships,
putting the economics of the role under the microscope again.
The French lender has thrown in the towel on its primary
dealership for Austria and Ireland and in bills for the
Netherlands, and bankers say that more could follow.
Banks previously fought hard to gain sovereigns' favour and
get appointed as primary dealers in the hope that they would be
rewarded with lucrative mandates for syndications and other
business in the country.
However, the appeal has eroded in recent years, with changes
in the way banks are regulated taking their toll on the
attractiveness of the role.
"No one will say this but no one thinks primary dealerships
are a good business," said a DCM banker away from the French
"It doesn't make any money and uses up a load of balance
sheet. It should be the jewel in the crown of the fixed income
business but it isn't. The timing surprises me but not that
they're pulling out."
Credit Agricole reviewed its government bond business to
take account of the impact of new regulations on banks' balance
sheets and profitability, a spokeswoman for the bank said in an
emailed statement to Reuters.
"I guess they won't be the last ones," said one SSA banker,
who added that it was "always a hard fight" to pull out of a
primary dealer position after spending money and time to
Another banker agreed this could be the beginning of more of
UBS shocked the market back in 2012 when it shut its
sovereign, supranational and agency business.
However, since then, banks have gone the same way and beyond
with RBC exiting unprofitable European government market-making
in 2013 and a spate of banks quitting primary dealerships in
Credit Suisse pulled out of the majority of European
countries, ING quit Ireland, Commerzbank left Italy, Societe
Generale stopped its UK government dealership, and Belgium did
not reappoint Deutsche Bank as a primary dealer and dropped
Nordea as a recognised dealer.
"When these things come, they tend to come in groups," said
another banker at a European bank. "The same regulatory
pressures are on all of us."
Credit Agricole remains committed to the government bond
business and the activity is part of its fixed income franchise,
the spokeswoman told Reuters.
Credit Agricole's move will not convince Austria to sweeten
terms for its primary dealers, according to Christian
Schreckeis, head of capital markets at the Austrian debt
"It doesn't change the way we work with our primary
dealers," he said.
"Austria's primary dealer panel for government bonds
consists of 20 banks. Furthermore there are nine more dealers
for Austrian Treasury Bills. This is a rather broad panel, also
relative to comparable sovereigns."
But bankers argue that the time is ripe for sovereigns to
consider the cost of market making on their primary dealers.
" have this view that primary dealerships have
rebalanced between the cost of entry and maintaining with the
revenues banks make, but that's simply not true," said the first
banker. "And things will get worst when the leverage ratio is
As far as Austria is concerned, no more banks are looking to
follow Credit Agricole out of the door, said Schreckeis.
"We are in constant dialogue with our primary dealers and
have had no indication that more are considering it," he said.
Secondary market liquidity is likely to see a "minimal"
effect from Credit Agricole's exit, Schreckeis added.
Two bankers said that this is mainly because Credit Agricole
was not a big player in the market anyway.
"They did the right thing though and should be
congratulated, but yet they will be criticised," said the DCM
(Reporting by Michael Turner; editing by Helene Durand and