Macquarie Lures Prop Traders in London as Rivals Pull Back

(Bloomberg) -- Macquarie Group Ltd., the Australian investment bank, is building up a European front in a risky business where few rivals have been able to tread since the financial crisis.

The bank has hired Massimiliano Pignatelli and Pablo de Mattos in London to make market bets with shareholders’ money, known as proprietary trading, according to people familiar with the matter. Macquarie sought out the traders to bolster revenue in the U.K. capital and may sign up more if the venture is a success, one of the people said, requesting anonymity as the details aren’t public.

Unlike U.S. and European banks, Australian lenders such as Sydney-based Macquarie can engage freely in trading on their own account. In the U.S., deposit-taking banks are barred from the activity under the 2013 Volcker Rule, a limit that has been a bane for Wall Street. While proprietary trading -- or prop trading, for short -- isn’t banned for European banks, it has become less economic under post-crisis rules.

The number of prop traders at Macquarie’s London hub remains small, said the people, and the bank makes most of its trading profits from dealings with clients rather than its own bets, according to its annual report for the year ended March 31. Still, the hires signal somewhat of a departure for the firm, said the people, given its U.K. office is more heavily involved in commodities dealing and infrastructure investing.

‘Good Returns’

“Proprietary trading in and of itself is not bad and it can yield good returns,” said Charles Whitehead, a law professor at Cornell University who has studied the activity. “It’s a question of controls and whether or not the managers understand the nature of what they’re taking on.”

Victoria Mundell, a spokeswoman for Macquarie in London, declined to comment on the hires. De Mattos didn’t comment, while Pignatelli didn’t respond to emails.

Shares in Macquarie climbed almost 4 percent on Friday. In the week, the bank forecast full-year income to rise 10 percent, largely due to buoyant commodities and capital-markets businesses.

Pignatelli previously worked at Societe Generale SA in Paris, while De Mattos left Credit Suisse Group AG earlier this year. Their hiring follows the arrival of another prop trader, Antoine Ged, from BNP Paribas SA last year, the people with knowledge of the matter said.

A typical bank trader acts as a middleman between buyers and sellers of assets, charging them commissions on each transaction and seeking to profit from swings in prices. By contrast, a prop trader doesn’t have clients and instead uses the bank’s funds for bets on the market.

Officials appointed by President Donald Trump have been working since last year to ease the ban on prop trading, but it remains in place for now. France and Germany have forced lenders to wall off the practice into separately capitalized units, while U.K. banks must similarly “ring-fence’’ their retail division from risky investment-banking operations.

Australian banks, meanwhile, don’t face any specific rules barring them from prop trading. This presents Macquarie with a competitive advantage, according to Whitehead, the Cornell professor and a former Citigroup Inc. executive.

Pignatelli and De Mattos specialize in equity derivatives, contracts that derive their value from underlying shares. They both have backgrounds in so-called delta one trading, according to their LinkedIn profiles.

De Mattos was head of European delta one trading at Royal Bank of Scotland Group Plc until 2013, when he joined Credit Suisse. Pignatelli was at SocGen for a decade, where he led a desk that also dealt in the trades, according to LinkedIn.

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