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 The British bank's exit means three of the top five banks in
commodities have significantly reduced or shuttered their natural
resource trading arms since last summer, with profits hit by
regulatory demands for lenders to hold more capital to shield them
against any problems.
Barclays said it would exit most of its base metals, energy and
agricultural trading but will continue in precious metals, some oil
and gas derivatives products and index products. The smaller
business will be based on electronic execution, it said.
The bank did not say how many jobs would be lost from its team of
160 commodities staff across trading, sales and research.
Barclays' commodities arm was built up when Bob Diamond was growing
his investment bank to challenge the big U.S. banks, especially
Goldman Sachs <GS.N> and Morgan Stanley <MS.N>, who pioneered
commodity trading on Wall Street 30 years ago.
Goldman and Morgan Stanley remain the two largest banks in
commodities and several banks have given up the chase.
JPMorgan Chase & Co <JPM.N> is selling its vast physical commodities
business to Swiss-based independent trader Mercuria for $3.5
billion, while Deutsche Bank <DBKGn.DE> announced late last year it
was closing its oil, grains and industrial metals business.
Commodities trading revenue for 10 of the world's biggest banks fell
to $4.5 billion last year, down from more than $14 billion in 2008,
according to estimates from analytics firm Coalition.
The Barclays business now ranges from providing hedging for wheat
farmers or steel producers to allowing speculation on Brazil's
coffee crop.
The bank also runs a vault in London to store gold and other
precious metals like rhodium, which Barclays will continue to
operate, a person familiar with the matter said.
Barclays declined to comment on what businesses would be shut or
potentially sold.
Barclays Chief Executive Antony Jenkins plans to unveil a wider
reduction in the size of his investment bank on May 8 as he attempts
to cut costs and improve profitability by axing areas that have been
hit hardest hit by tougher regulation. It could see thousands of
jobs go.
ROCKY AGM?
Jenkins faces a potentially rough ride at Barclays' annual
shareholder meeting on Thursday. The bank has been criticized at
past annual meetings for some of its commodities activities and
Jenkins is expected to be criticized for last year increasing
bonuses for investment bankers despite a drop in profit.
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A significant number of shareholders are expected to vote against
the bank's remuneration report in protest. But that vote is
non-binding, and Barclays is expected to win approval for a plan to
pay up to twice the level of employees' salaries as bonuses under
new European Union rules that cap pay for staff.
Barclays had already cut some of its metal, U.S. power and
agricultural trading business, but in the past two years had also
branched into new areas to bolster profits hampered by restrictions
on trading with the bank's own money and rising capital
requirements.
The bank signed several supply and sales agreements with major oil
refineries since summer 2012, including Essar Oil's 296,000 barrel
per day (bpd) Stanlow plant in Britain, Par Petroleum's 94,000 bpd
refinery in Hawaii, and Klesch's 100,000 bpd Heide plant in northern
Germany.
Mike Bagguley, head of commodities at Barclays, said in November the
bank was starting to get "critical mass" as refiners became aware of
their financing capabilities, including for crude deliveries and the
sale of products like gasoline and diesel.
But commodities have also attracted increased regulatory scrutiny,
and the U.S. Federal Energy Regulatory Commission (FERC) filed a
lawsuit in a California federal court last year to recover some $435
million from Barclays for alleged power market manipulation. The
bank disputes the charge.
Barclays said its retreat would have no material impact on its
financial results.
In addition to Goldman and Morgan Stanley, Bank of America-Merrill
Lynch <BAC.N> also remains a big firm in the U.S. energy industry
and Citi has expanded its commodity trading over the past year,
sources said, while Commonwealth Bank of Australia <CBA.AX> has
expanded its commodities financing.
Asian-Pacific and South American banks, including Australia's
Macquarie Bank Ltd <MBL.UL> and Sao Paulo-based BTG Pactual Banking
Ltd <BTG.UL>, are also growing their commodities businesses.
(Additional reporting by Jonathan Leff and Jan Harvey;
editing by
Veronica Brown and David Evans)
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