LONDON Oct 3 Barclays is finding new ways to boost its commodities business, offering trading services as part of a mix of capital solutions and merger advice in an approach showing banks can succeed in keeping trading desks despite tighter regulations.
The British lender is a member of a small club of large commodities players in banking together with Goldman Sachs , Morgan Stanley and JPMorgan, all of which have expanded oil and metals trading aggressively over the past decade but had to scale back in the last few years.
Most of the downsizing happened on the so-called proprietary side, where banks traded with their own money, as regulators said those actions might have added to market froth.
The emphasis switched to trading commodities for clients, a less profitable business but ultimately one that is raising fewer questions with regulators, which are pushing banks to retreat to their core operation of lending.
Offering clients commodity trading as part of a much bigger cocktail of services is one innovative move, as a recent deal by Barclays to supply oil to a refinery shows.
U.S. energy firm Par Petroleum Corp last week completed the purchase of U.S. refiner Tesoro Corp's 94,000-barrels-per-day refinery in Hawaii for over $300 million in stocks and cash.
Under the deal, Barclays will hold the oil and petroleum product inventories at the plant, which amount to 3.2 million barrels, as well as supplying it with four to six cargoes of crude a month.
Independent refiners have struggled for years under poor refining margins, and such deals allow them to alleviate the burden on working capital and reduce price-volatility risks.
Several of America's largest enterprises including Boeing Co warned the Federal Reserve on Tuesday that restricting Wall Street's trading in physical commodity markets could harm their business.
Barclays' Hawaiian move is somewhat similar to last year's deal with India's Essar in which the bank became the oil supplier and holder of 5 million barrels of product stored at Stanlow, the second-largest UK refinery, for three years.
But the latest arrangement is different as it came embedded with an acquisition.
"The Essar deal was a working-capital solution ... the Hawaiian deal came as a combination of a structured capital solution and an M&A transaction," said John Eleoterio, global head of commodity-linked finance at Barclays.
Tesoro shut the refinery in April after trying to find a buyer for more than a year. Par emerged as the purchaser in June and began working on the plant's restart.
"We have been approached by Par to assist in developing a working-capital solution for the acquisition ... The owner was considering shutting down the refinery and turning it into a terminal. But ultimately Par was able to complete the acquisition and keep the refinery up and running," he said.
The Par deal will last three years and can be extended for another two years. The plant is expected to continue running mainly on Middle Eastern, Russian, South American and North African crudes but could add North American grades.