LLOYDS PULLS OUT OF EUROBOND/GILT MARKET MAKING
Lloyds Bank Plc said it is withdrawing
from market making in Eurobonds and U.K. Government bonds
(gilts).
    It said in a statement it will maintain an active presence
in short-term securities trading, swaps and other treasury
products, building on its strengths in traditional foreign
exchange and money markets.
    In the statement, Lloyds chief executive Brian Pitman said
"We have a relatively small position in these two overcrowded
markets and we have decided to reallocate the resources to
opportunities which promise a better return on our
shareholders' investment."
    With this decision, Lloyds becomes the second major U.K.
Clearing bank to feel the effects of the deregulation of the
London Stock Exchange, or "Big Bang," last October. Earlier this
year, Midland Bank Plc pulled out of equity market making
because it did not believe the return justified the costs
involved in maintaining and developing a market share.
    Lloyds Treasurer Alan Moore subsequently told Reuters that
the decision was taken at a board meeting earlier today and had
been under discussion for some time.
    He said the move was not a reaction to any losses sustained
in the trading of Eurobonds or gilts but rather a result of a
"strategic review" of the future of Lloyds involvement in these
markets. In the end, Lloyds decided these markets did not
represent "an attractive return to our shareholders," he said.
    He noted that Lloyds had not expected its U.K. Government
bond operations would be profitable in the early stages,
although he declined to discuss the finances of the operation.
    "This is an overcrowed market," Moore said of the U.K.
Government bond market, which began Big Bang with 27 market
makers. Lloyds withdrawal now leaves the number at 26.
    Market participants noted that Lloyds was the only one of
the clearing banks which did not buy a jobber (middle man) or
broker before Big Bang.
    Under the old system, the gilt market operated under a
separate system which involved separate functions for jobbers
and brokers. Now these tasks have been taken up by market
makers acting as both.
    Moore said that one reason Lloyds decided to withdraw from
these markets was that they could no longer justify the
commitment of capital that was required to maintain these
operations.
    He said Lloyds would make every effort to redeploy
employees in these areas within the bank.
 REUTER
