RBS says bond markets to remain tough in Q3

The second-quarter earnings of Royal Bank of Scotland's global banking and markets business will reflect the weakness in fixed-income markets due to debt woes in the eurozone, an executive said, warning bond markets will remain tough in the third quarter.
The comments come a few days before RBS, 83 percent owned by the UK government, announces second-quarter earnings. Global banking and markets account for more than half of the bank's core profit.
"It wouldn't surprise you to note that the entire fixed-income markets are more challenged in the second quarter than they were in the first and we will be representing that trend," John Hourican, chief executive of RBS's global banking and markets business, told Reuters.
"We have a biased business towards macro, fixed-income. I would have to say for the third quarter the markets continue to be challenging."
Hourican, however, said he cannot guide on the second-quarter earnings.
Deutsche Bank estimates that RBS's core profit will fall 22 percent quarter-on-quarter, hurt by global banking and markets.
Profits at its core business - retail and investment banking arms and excluding businesses due to be sold off - rose 25 percent quarter-on-quarter to 2.1 billion pounds ($3.4 billion) in the first quarter.
At the group level, RBS posted a loss due to bad debts at its Irish operations.
Sovereign debt fears on both sides of the Atlantic have hurt fixed-income investors as markets worry about defaults and the impact it would have on balance sheets.
Earlier this week, Goldman Sachs missed earnings expectations due to a big drop in income from fixed income, currency and commodities (FICC) trading, due to weak client activity and a sharp pullback in risk taking.
"Markets are very difficult to call right now," Hourican said in an interview in Singapore, adding that the banks' clients are not taking risk.
He said the world's largest companies are in a better shape post crisis because they have repaired their balance sheets, they can raise cheaper money from debt markets and are prepared for opportunities.
Financial institutions are concerned about stricter regulation, while large asset managers that bet on macroeconomic trends are dogged by volatile markets and concerns over the eurozone crisis.
"Looking forward all they see is a paralysed eurozone with political and fiscal issues, which need to be redressed and cannot be addressed by the markets but must be addressed by policy and governments," Hourican said.
"That is causing a great degree of nervousness in macro-markets. Nobody is quite certain how it will be resolved."
Hourican said RBS, which sold its retail business in Asia to concentrate on wholesale banking, continues to seek growth in the region. Asia currently contributes 15 percent of RBS's global banking and markets business, which he said is expected grow to 20 percent in three years.
"We expect Asia to grow, not just because the natural GDP of the region will be growing, but also because we believe we under-punch our weight and our capabilities in the region," Hourican said.
He said the bank is hiring 600 to 700 people in Asia every year and plans to grow its business in core markets such as China, India, Australia and Singapore.
RBS operates in 11 countries in Asia and recently launched a joint venture with its local Chinese partner Huaying Securities, hoping to tap the booming investment banking business in the country.