Newspaper article International New York Times

Barclays Plans to Exit Commodities Business ; Bank Joins Other Lenders in Leaving That Arena Because of Falling Profits

Newspaper article International New York Times

Barclays Plans to Exit Commodities Business ; Bank Joins Other Lenders in Leaving That Arena Because of Falling Profits

Article excerpt

Barclays is said to be planning to exit large parts of its commodities business, following other major investment banks that are struggling with falling profits.

The British bank Barclays planned to announce on Tuesday that it would exit large parts of its commodities business, a decision that comes as big investment banks have struggled with heightened regulatory scrutiny and falling profits.

A person briefed on the bank's thinking, but not authorized to publicly discuss the plan, described it on the condition of anonymity.

Barclays is among the top five banks in the commodities business that control much of the global market.

The bank plans to cut more jobs, adding to the tally of layoffs from a broad restructuring aimed at getting the bank back on solid footing after a parade of management changes, regulatory run-ins and core business challenges.

Antony P. Jenkins, the chief executive, has said that Barclays will exit businesses that do not generate returns greater than the bank's cost of financing. The investment bank, which includes the commodities business, fell short of that goal last year.

The bank will either shut down or sell much of its metals, energy and agricultural commodities business, the person briefed on the plan said. Precious metals trading will be folded into foreign exchange trading, the person said.

A spokesman for Barclays declined to comment.

Wall Street firms often race into and pull out of businesses like commodities. Although Goldman Sachs has been in commodities since 1981, when it acquired J.Aron & Company, many other banks flocked in over the past 10 years and are now withdrawing.

Deutsche Bank said in December that it would exit its commodities trading business, cutting 200 jobs. The bank said it would no longer trade in agricultural, base metals and coal and iron ore commodities but, like Barclays, opted to keep its precious metals trading business.

At the time, Colin Fan, co-head of corporate banking and Securities at Deutsche Bank, said the decision to refocus the business was "based on our identification of more attractive ways to deploy our capital and balance sheet resources."

The move, he said, "responds to industry-wide regulatory change and will also reduce the complexity of our business."

Morgan Stanley is selling its oil trading arm to Russia's Rosneft, but maintaining its power and natural gas desks. And JPMorgan Chase is selling its commodities business for $3.5 billion to the Mercuria Energy Group of Switzerland, which was started by two Goldman Sachs traders.

The business trades hard assets, as opposed to the financial instruments that are tied to commodities.

The stampede out of the business leaves rich opportunities for commodity merchants like Mercuria and Glencore Xstrata, which do not face the same stringent regulations and capital requirements as banks. …

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