By David Sheppard and Ron Bousso
LONDON Dec 5 Deutsche Bank AG pulled
the plug on its global commodities trading business on Thursday,
cutting 200 jobs as it becomes the first major bank to exit the
once lucrative sector due to toughening regulations and
Germany's largest bank, which was one of the top-five
financial players in commodities, said in a statement it will
cease trading in energy, agriculture, base metals, coal and iron
ore, retaining only precious metals and a limited number of
financial derivatives traders.
The cuts are expected to largely fall on its main commodity
desks in London and New York.
The move comes as the financial sector's role in commodity
trading has been squeezed by lower margins, higher capital
requirements and growing political and regulatory scrutiny of
the role of banks in the natural resources supply chain.
"The decision to refocus our commodities business is based
on our identification of more attractive ways to deploy our
capital and balance sheet resources," Colin Fan, co-head of
Corporate Banking & Securities at Deutsche Bank, said in a
"This move responds to industry-wide regulatory change and
will also reduce the complexity of our business."
Deutsche Bank's decision will also raise questions for other
banks in the sector, after JPMorgan Chase & Co put its
physical commodity arm up for sale this summer, while
Morgan Stanley has been exploring a sale of its energy
trading unit for almost two years.
Deutsche Bank was among the first financial firms a decade
ago to challenge the long dominance of Goldman Sachs Group Inc
and Morgan Stanley in commodities trading. But it
suffered a series of ups and downs and personnel changes over
the years, including the departure of global chief David Silbert
a year ago.
Silbert's departure was the first sign the bank was
withdrawing from the one-time billion-dollar business, which
included a substantial U.S. and European power and gas book, a
major market-making operation in oil options, and base metals
"Silbert built up Deutsche Bank's commodity group to make it
a top five contender in the space of five years and then left
rather than pull down the house he built," said George Stein,
managing director of New York-based recruiting firm Commodity
"The destruction of the commodities business at Deutsche
Bank is one more sign that many of the large global banks no
longer see commodities as viable," Stein added.
BANKS ROLL BACK
The bank announced the decision to staff at a meeting
shortly after lunch on Thursday, with around half the 200
traders affected clearing their desks and leaving immediately,
according to a person familiar with the matter.
The remaining traders will be asked to stay and help wind
down or sell-off parts of the business as part of a unit called
the Special Commodities Group over the next two years, with the
process being led by the current co-heads Louise Kitchen and
More than 40 traders are expected to be absorbed by other
parts of the bank, including those who will continue trading
financial commodity derivatives for clients.
The bank is not expected to try and sell its commodity
The bank's near $10 billion commodity index business, which
allows smaller investors to get exposure to commodity price
moves, will not be affected by the closure, according to a
person familiar with the matter.
The bank's flagship PowerShares DB Commodity Index Tracking
Fund has $6 billion invested alone, according to the fund's
website, making it one of the biggest in the market.
Deutsche Bank had already closed down most of its
electricity, natural gas and carbon trading operations in Europe
and North America over the past year as regulation tightened,
and as the bank was investigated for an alleged tax scam
involving the trading of carbon permits.
The bank also reached a $1.5 million settlement with the
U.S. Federal Energy Regulatory Commission in January for
manipulation of power markets in California.
The decision to quit commodities is not directly related to
the U.S. Federal Reserve's current review of the role of banks
in physical commodity trading, but comes as the bank reassesses
its overall business as part of a strategic review.
The Federal Reserve, which first allowed commercial banks to
trade physical commodities in 2003, is expected to announce
changes in early 2014 in how it regulates the sector.
Deutsche Bank was an active participant in physical
commodity markets, but did not own any major trading
infrastructure such as power plants, warehouses or oil storage
tanks that it could sell as it winds down the business.
The business struggled to achieve "critical mass" over the
past seven years, said Seb Walker at research firm Tricumen.
"Increased regulatory pressure, competition from commodity
trading houses and a shift away from the energy markets have all
conspired to make commodities a tough market for the top banks."
WINDS OF CHANGE
While 200 traders is a tiny fraction of Deutsche Bank's
overall headcount of almost 100,000, at times the commodities
business had provided significant revenues for the bank.
The total commodities market for banks rose as high as $12
billion at the end of the last decade, but has since shrunk to
less than half that as prices stabilised and as regulators put
strict restrictions on trading with the bank's own money.
In the first nine months of this year, commodities revenues
for the largest banks in the sector fell 18 percent to $4
billion, London-based financial industry analytics firm
Coalition said in a report last month.
Full-year commodity revenues for banks are forecast to
decline by 14 percent to $4.7 billion, it said.
"The regulatory environment has gotten extremely cumbersome
and expensive for banks," said Jeffrey Christian, managing
director of commodities consultant CPM Group, who used to work
for Goldman Sachs oil and metals trading arm, J.Aron.
"At a number of banks now, you have more people doing
compliance and risk management than you have doing the actual
Not all banks are scaling back, however.
London-headquartered Standard Chartered, which does a lot of its
business in emerging markets, said this month it plans to double
revenues from its commodities business in the next four years
and plans to add 10-20 staff to its existing team of 100 in the
next six months.
Global commodity merchants such as Vitol SA,
Glencore Xstrata Plc and Mercuria, which are not as
affected by growing regulation, are also looking to step into
the vacuum left by the big U.S. and European financial
heavyweights. Asian-Pacific and South American banks, including
Australia's Macquarie Bank Ltd and Sao Paulo-based BTG
Pactual Banking Ltd, are also expanding their