LONDON (Reuters) — Bank of
America-Merrill Lynch shut its European power and gas sales and
trading operation on Tuesday, the fourth major player to close parts
of its commodities business as tighter regulation and fewer
arbitrage opportunities erode profits.
Last month Morgan Stanley <MS.N> sold its main physical oil trading
unit to Russian state-run oil major Rosneft, and Deutsche Bank said
it was largely exiting commodities trading. In July, JPMorgan <JPM.N>
put its physical trading operations up for sale.
The sector is now dominated by commodities trading houses and
utilities, with Barclays, Citi and Goldman Sachs among the only
remaining large banks with a significant presence.
Difficulties around speculative trading in the growing renewables
market has also dented profitability, traders say.
BofA-ML had been scaling back its trading presence in the European
power and gas market over the past few months, a trading source, who
has done business with the firm, said.
The group had not been a big player in the markets since Bank of
America took over Merrill Lynch in 2008, the source said.
"The decision follows a recent review of its broader commodities
activities and reflects the combined impact of lower client demand
for European power and gas hedging and recent regulatory changes," a
BoA-ML spokesperson said in a statement.
The bank's European carbon trading desk will also be reduced but
will not be shut entirely, a source familiar with the matter said.
Employees affected by the power and gas desk closure were told of
the news on Tuesday, with a low double-digit number of staff
affected, the source said.
BofA-ML will continue trading power and gas in the United States as
well as coal, commodity indexes, oil and metals trading, the
spokesperson said, and the bank will dispose of its power and gas
inventory through a formal sales process.
Long-term sales and trading arrangements with power clients will be
wound down, according to a person familiar the matter.
The bank has supply and sales arrangements with both the coal-fired
1,960 megawatt (MW) Eggborough plant in Yorkshire and a 1,000 MW
gas-fired plant in Barking, also in Britain.
Barking Power declined to comment and no one at Eggborough Power was
immediately available for comment.
Reuters reported in October the bank has been waiting for more than
three years for permission from the Federal Reserve to enter into
so-called "tolling" arrangements with power plants, which would
allow them to take a greater operational role in electrical
The bank has made a number of hires in other parts of its
commodities business over the past year, however, including
Barclay's former oil chief George Cultraro, to run its global crude
and products trading business.