Barclays to wind down commodities trading
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.
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.
But the retreat from parts of its commodities business is due to be announced on Tuesday. Barclays declined to comment.
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.
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.
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.
In the most prominent example to date, Mercuria, a Geneva-based trading house founded a decade ago by two former Goldman Sachs traders, agreed to buy JPMorgan Chase’s physical commodities business for $3.5bn.
Only Goldman Sachs, one of the first banks to enter commodities markets 30 years ago, seems to be strategically committed to the sector, this year deeming it “too important to clients to exit”.
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.
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.
Separately, Barclays is combining its equities and bond trading units, in a radical departure from the traditional way investment banks organise trading businesses.
In a first step, the bank will merge responsibilities for global equities and credit trading under the helm of Joe Corcoran, previously head of equities, according to an internal memorandum sent out last Thursday and seen by the Financial Times.
The reshuffle presages cuts across a range of trading units by bringing them closer together and creating shared infrastructures.
“The intent is to drive efficiencies and synergies between the businesses,” one person close to the decision said. “You have to break down the silos.”
Mr Jenkins has come under pressure to fix the investment bank after he angered investors with a rise in staff bonuses despite falling profits. The unit failed to meet its cost of capital last year with a return on equity of 8.2 per cent.
At a shareholder meeting this week, Mr Jenkins faces the prospect of a protest vote over the bank’s bonus increase last year.