INTERVIEW-StanChart to bulk up commodities business as rivals retreat

Tue Dec 4, 2012 8:39am GMT

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* Aims to boost commodity headcount by up to a fifth next year

* China physical trading office to launch in Q1 next year

* Plans to tap emerging market client base to boost commodities business

By Melanie Burton and Jessica Jaganathan

SINGAPORE, Dec 4 (Reuters) - Standard Chartered aims to double revenue from its commodities business in the next four years, tapping its substantial emerging markets client base to strengthen its hand and opening a new trading office in China.

In a year that has seen European banks such as UBS and Natixis pull back from commodities, London-headquartered Standard Chartered has been taking advantage of its strong presence Asia and other fast-growing emerging markets to fill the gap.

The bank has hired 30 people in its commodities business across sales and trading this year in Singapore, Hong Kong, London, New York, Shanghai and Johannesburg, including luring a string of physical traders from the likes of Glencore and Macquarie.

It hopes to add another 10-20 staff to its current headcount of about 100 in the next six months and is looking to hire in Dubai, Shanghai and Johannesburg.

"We've hired in oil, coal, metals, ags. We will continue to hire in 2013," Arun Murthy, global head of commodities, financial markets, said in an interview.

"There's a lot more penetration Standard Chartered can do -- in iron ore, in precious metals. We just need to get more experienced people on board," he added.

The bank set up its commodities trading in 2007 after hiring a group of oil traders led by Murthy from the now-defunct Lehman Brothers. Its presence in a string of emerging markets also helped as the global financial crisis forced European banks to scale back commodities trading in the past four years.

Standard Chartered already derives more than 90 per cent of its overall income from Asia, Africa and the Middle East. It is trying to drive growth by building across the bank's divisions to broaden services to customers.

"Our client strategy is a multiproduct strategy. When we go to a client, we are not just pitching an oil hedge. At their request we show them across cash management, financing, risk management. It's a very successful strategy," Murthy said.

The bank said it posted a 63 percent jump in commodities revenue in 2011, and has averaged 20 percent annual growth in the past five years. It did not breakdown revenue.

"There's way more upside (for the commodity business). We have thousands of clients, so how do we penetrate all of these clients that are doing other business with the bank..."

PHYSICAL TRADING

One way to expand its commodities services, the bank says, is to boost physical trading of commodities. It launched physical trading for oil and metals in the first quarter of this year, but has recruited aggressively in the last three months to expand this segment.

It hired Terrence Ng, a veteran middle distillates trader from Glencore, to head its oil products team and to work closely with Cyril Youinou, its global head of oil trading.

Standard Chartered has also received a licence to open a wholly foreign-owned enterprise (WFOE) in China and aims to launch its office in the first quarter of 2013.

This will allow the bank to import metals such as copper, offer more hedging products for domestic customers and trade futures contracts through local brokerages on the Shanghai Futures Exchange (SHFE), it has said.

The bank will hire a Chinese sales force to be based in Shanghai, Murthy said.

Standard Chartered is one of the biggest financiers of copper held in bonded warehouses in China, but has so far been unable to trade physical commodities outside the warehouses in mainland China.

The bank says it is also investing in technology to give its customers direct access to trade London Metal Exchange contracts, which with its WFOE status and its physical trading presence will offer more avenues for growth.

"This will then of course flow over into our ability to offer clients over-the-counter products around risk associated with that business," said Tim Wilson, managing director of commodities, financial markets, at Standard Chartered.

But unlike commodities powerhouse rivals JP Morgan and Goldman Sachs, the bank is not looking to gain a foothold in storage.

"We want to be in it from the mine gate to the smelter gate," said Wilson.

"Warehousing is not over, but anything we would ever do in that space would only be client led. It's a different strategy to some other banks."

The bank already has a presence in 13 African countries, and is building out Johannesberg as a sales hub that will focus on precious metals and bulk commodities. The bank also has plans to get into freight as it benefits from a growing trade corridor between Africa and Asia.

CHINESE DEMAND

Murthy played down concerns over Chinese demand for commodities.

Latest data showing that Chinese manufacturing output grew last month for the first time in more than a year and a drawdown in iron ore stocks and a reduction in copper imports pointed towards an improving market albeit at a slower pace, he added.

Brent crude prices should trade slightly higher next year than the $110-111 a barrel now, to be more in a range of $115-125, he said. (Editing by Ed Davies)