If need to know one thing about RBS's second quarter 2016 results, it is this: the rates traders killed it.
Like HSBC, RBS breaks out the results to its rates trading business. Unlike HSBC's, RBS's rates trading business did very, very, very, (very) well in the three months to June. Revenues in the second quarter rose 60% year-on-year, compared to a desultory 12% increase at its larger rival.
The big rates boost meant RBS's overall macro trading business (rates and FX combined) performed far better than rivals' in the second quarter. Witness the chart below.
What makes RBS's rates traders so special?
It might be their astounding bank of talent. Alan King, head of sterling rates trading at RBS has worked for the bank since 2002 and clearly has a bit of experience. RBS also hired David Henness from Bank of America as head of European and Asian rates trading last May; Henness can feel pretty chuffed with this latest set of results.
RBS's rates success might be because its business is pretty tiny though. Its rates traders turned over just £258m in the second quarter, compared to £570m at HSBC. RBS's combined macro business generated revenues of just £258m in the second quarter, compared to £1.3bn at HSBC and £612m at Barclays. When you're that small, any increase can look impressive.
And yet, RBS does seem to be onto something. As we noted the other day, it's the bank's with the big corporate client flows that seemed to do well in the past quarter. RBS fits this description exactly: "As the largest UK commercial bank we have natural flows in FX and financing when there are expectations of FX and interest rate volatility," said CEO Ross McEwan.
With rates revenues seemingly boosted by flows from the commercial bank, RBS seemingly doesn't feel the need to pay its traders top market rates. In the second quarter, accrued pay per head was £49k in the corporate and investment bank, down from £53k last year. The good news is that RBS is no longer cutting headcount from its investment bank: staff numbers remained stable at 1,300 in the three months to June and restructuring costs in the CIB fell dramatically year-on-year.