July 1 Citigroup Inc has bought Deutsche Bank AG's U.S. power trading books, the latest move by the U.S. bank to build its energy trading business as other Wall Street rivals retreat, two sources said on Tuesday.
The sources said Deutsche sold two power trading books to Citi last week covering the ERCOT region in Texas and the East and Midcontinent.
Citi has been building its commodities trading operations, which focus on power and natural gas, after scaling back its exposure to energy, metals and agricultural markets following a government bailout during the world economic crisis in the late 2000s.
Citi's revenue from commodities transactions nearly doubled in the first quarter of 2014 year-over-year.
Last year, Citi was No. 10 among the world's top 10 investment banks in commodities according to British consulting firm Coalition. In May, Reuters reported the bank will start trading physical Canadian crude oil and plans to grow its commodities trade finance business.
Deutsche, Germany's largest bank which was one of the top-five financial players in commodities, said in December 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, due to toughening regulations and diminished profits.
The Deutsche sale to Citi as part of the closure of its energy trading business was first reported by trade journal SparkSpread.
Officials at Deutsche and Citi declined comment.
Since the financial crisis of the late 2000s, several banks like Deutsche have scaled back their exposure to U.S. power markets due in part to increased government regulation and market manipulation investigations.
In January 2013, Deutsche settled with the U.S. Federal Energy Regulatory Commission (FERC) for $1.7 million over allegations the bank's traders manipulated the California power market.
Earlier this year, Deutsche initiated a sale of 17 books of commodities trading positions, including crude and refined products structured transactions; dry bulks; and mining finance, according to a marketing document, according to SparkSpread.
Deutsche recently sold its European power & gas trading books to EDF Trading, a unit of Electricite de France SA , SparkSpread said earlier in June. (Reporting by Scott DiSavino and Anna Sussman in New York; Editing by Marguerita Choy)