UPDATE 2-Deutsche commodities head to leave, power desk hit hard

Wed Dec 12, 2012 7:24pm GMT

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* Comes as part of job cuts in investment banking

* Commodities trading suffers from tighter regulations

* Silbert, formerly gas trader, led Deutsche push in commodities

By Dmitry Zhdannikov and Simon Falush

LONDON, Dec 12 (Reuters) - Deutsche Bank will make steep staff cuts at its U.S. and European power and gas trading desks, with the departures of dozens of traders and its global head of commodities, David Silbert.

Several sources close to the situation said on Wednesday the bank was shrinking the workforce as part of an earlier announced plan to chop 1,500 positions in corporate banking to save billions of euros amid a profit slump due to the euro zone crisis

Cuts on the power desk will be the steepest in the commodities division, they added, in a move resembling those by Deutsche's top rivals in commodities trading as banks retreat to the core at a time of tightening regulations.

A Deutsche spokesman declined to comment.

"Power and gas will be hit hard," one source said.

"They are letting more than 50 go globally, mostly in Houston, but there will be redundancies in Europe," a recruitment industry source said, while a source on the desk in Europe also confirmed the departures.

The cutback comes as Germany's biggest bank is hit by a widening probe linked to a tax scam involving the trading of carbon permits, and hundreds of police and tax inspectors raided its Frankfurt offices on Wednesday.

Deutsche is one of the biggest players in the $148 billion European carbon market.

BIG GAME

Silbert, a U.S. gas trader in the 1990s, joined Deutsche from Merrill Lynch in 2007 and turned the bank into a top five player in trading oil, metals and power among banks.

Deutsche, together with Barclays and J.P. Morgan , broke into the commodities arena in the last decade with acquisitions or aggressive growth to challenge established veterans Goldman Sachs and Morgan Stanley.

But all five had to shrink operations after the 2008 financial crisis in the face of rising regulations and a regulatory crackdown on proprietary trading, when deals are done by banks for themselves rather than on behalf of clients.

Regulators say banks should focus on serving the clients and helping the economy with credit.

"The total wallet (revenue for all banks) back at the peak was about $14 billion for the banking sector in commodities trading. I'd imagine this year it'll be about $7 billion," Silbert told Reuters in an interview this year.

Deutsche's rivals such as Goldman or Barclays have already seen departures of high-profile traders to less regulated trading houses and hedge funds, while Morgan Stanley has even considered spinning off its commodities business, sources said.

One source familiar with the developments said Deutsche had no plans to exit any of its commodities trading businesses despite downsizing the operation.

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