With JPMorgan and Deutsche Bank having exited the commodities business (and numerous other banks discussing it ahead of the Fed and regulators' decisions over banking rules of ownership), it appears a few short months of regulatory scrutiny is enough to warrant more broad-based cuts across bulge-bracket banks historically most manipulated and profitable business units. As The FT reports, Barclays, one of the world’s biggest commodities traders, is planning to exit large parts of its metals, agricultural and energy business in a move expected to be announced this week. This comes on the heels of Barclays shuttering its power-trading operations (after refusing to pay $470mm in fines) with CEO Jenkins expected to announce several thousand layoffs.
As The FT reports, the regulatory uncertainty appears a major hurdle...
Regulators, including the US Federal Reserve, are reviewing whether to curb banks’ commodities trading operations after they were accused of manipulating markets for electricity, aluminium and other materials for their own profit.
And Barclays has already run afowl of regulators...
Barclays closed its US and European power trading operations in February after it was fined a record $470m for allegedly manipulating power prices by the US Federal Energy Regulatory Commission. Barclays has refused to pay the fine, shifting the dispute to a federal court.
So the decision to shut its commodity business should not be a total surprise...
Barclays, one of the world’s biggest commodities traders, is planning to exit large parts of its metals, agricultural and energy business in a move expected to be announced this week.
The shake-up comes as commodity trading suffers a sharp slide in revenues and attracts greater scrutiny from regulators, which has already led to the withdrawal of several big banks from the area.
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Chief executive Antony Jenkins is preparing a strategic update for investors on May 8 and is expected to slash several thousand jobs by cutting Barclays’ exposure to areas that do not generate returns above their cost of capital. These are likely to be moved into an internal “bad bank” and either sold or closed down.
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The retreat is being driven by tighter regulation, fresh capital constraints and lower profitability due to stable prices for oil and other commodities. Coalition, a consultancy, estimates the revenues of the top 10 banks in commodities fell last year to $4.5bn from a record $14.1bn in 2008.
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Precious metals trading is likely to move into the bank’s foreign exchange trading business. There are expected to be heavy job cuts among the 160 staff in its global commodities trading, sales and research operations, many of them in London.
The base of manipulating banks is shrinking...
Barclays is one of the top five banks in commodities – which together controlled about 70 per cent of the commodities trading pot last year. But several are shrinking or disposing of these businesses, including Morgan Stanley, Deutsche Bank, UBS and Royal Bank of Scotland.
and becoming ever more concentrated with Goldman, Mercuria (ex-JPM), and Glencore to run the commodities world.