A Canadian bank pulling out as a primary dealer in the bonds of five core European governments might on the face of it say more about the bank than it does about the state of primary dealers.
But it would be foolish to see it that way alone.
Indeed, RBC Capital Markets’ decision last month to effectively shut down its European government bond business by pulling out of its primary dealerships in Belgium, France, Germany, the Netherlands and Spain should be seen as a warning.
For years, running primary dealerships has been an expensive business and it is increasingly so in light of new capital requirements, fuelling expectations that those banks that do not have critical mass will start pulling out. RBC might be the first of many.
Ask any global markets head at any investment bank and most will likely say in private that they have considered or are considering the future of their primary dealerships in the eurozone.
As one markets chief told Euromoney earlier this year: "We’re all asking ourselves: do I really want to blow my brains out in Spain again?"
Although bankers always argue that there are ancillary benefits to being a primary dealer, such as the market insight gleaned from flow trading, the dwindling amount of profitable derivatives business and opportunities for fee-paying bond syndications from governments have forced senior management to reconsider their commitment.
The significance is not that RBC has itself pulled out after three years of concerted efforts to gain market share, but rather that its decision might be seen as validation for others to follow suit.
Being the first to close a business is hard; those that follow will undoubtedly find it easier.