* Barclays to quit most of commodities trading businesses
* Bank to remain in precious metals, some other areas
* Retreat means 3 of top 5 commodities banks have pulled
* Tougher regulations have eaten into profits
(Adds industry context, details on Barclays investment bank
By Steve Slater and David Sheppard
LONDON, April 22 Barclays will quit
most of its commodities trading businesses, joining a broader
retreat by banks as profits tumble in the face of tougher
The British bank's exit means three of the top five banks in
commodities have significantly reduced or shuttered their
natural resource trading arms since last summer, with profits
hit by regulatory demands for lenders to hold more capital to
shield them against any problems.
Barclays said it would exit most of its base metals, energy
and agricultural trading but will continue in precious metals,
some oil and gas derivatives products and index products. The
smaller business will be based on electronic execution, it said.
The bank did not say how many jobs would be lost from its
team of 160 commodities staff across trading, sales and
Barclays' commodities arm was built up when Bob Diamond was
growing his investment bank to challenge the big U.S. banks,
especially Goldman Sachs and Morgan Stanley, who
pioneered commodity trading on Wall Street 30 years ago.
Goldman and Morgan Stanley remain the two largest banks in
commodities and several banks have given up the chase.
JPMorgan Chase & Co is selling its vast physical
commodities business to Swiss-based independent trader Mercuria
for $3.5 billion, while Deutsche Bank announced late
last year it was closing its oil, grains and industrial metals
Commodities trading revenue for 10 of the world's biggest
banks fell to $4.5 billion last year, down from more than $14
billion in 2008, according to estimates from analytics firm
The Barclays business now ranges from providing hedging for
wheat farmers or steel producers to allowing speculation on
Brazil's coffee crop.
The bank also runs a vault in London to store gold and other
precious metals like rhodium, which Barclays will continue to
operate, a person familiar with the matter said.
Barclays declined to comment on what businesses would be
shut or potentially sold.
Barclays Chief Executive Antony Jenkins plans to unveil a
wider reduction in the size of his investment bank on May 8 as
he attempts to cut costs and improve profitability by axing
areas that have been hit hardest hit by tougher regulation. It
could see thousands of jobs go.
Jenkins faces a potentially rough ride at Barclays' annual
shareholder meeting on Thursday. The bank has been criticised at
past annual meetings for some of its commodities activities and
Jenkins is expected to be criticised for last year increasing
bonuses for investment bankers despite a drop in profit.
A significant number of shareholders are expected to vote
against the bank's remuneration report in protest. But that vote
is non-binding, and Barclays is expected to win approval for a
plan to pay up to twice the level of employees' salaries as
bonuses under new European Union rules that cap pay for staff.
Barclays had already cut some of its metal, U.S. power and
agricultural trading business, but in the past two years had
also branched into new areas to bolster profits hampered by
restrictions on trading with the bank's own money and rising
The bank signed several supply and sales agreements with
major oil refineries since summer 2012, including Essar Oil's
296,000 barrel per day (bpd) Stanlow plant in Britain, Par
Petroleum's 94,000 bpd refinery in Hawaii, and Klesch's 100,000
bpd Heide plant in northern Germany.
Mike Bagguley, head of commodities at Barclays, said in
November the bank was starting to get "critical mass" as
refiners became aware of their financing capabilities, including
for crude deliveries and the sale of products like gasoline and
But commodities have also attracted increased regulatory
scrutiny, and the U.S. Federal Energy Regulatory Commission
(FERC) filed a lawsuit in a California federal court last year
to recover some $435 million from Barclays for alleged power
market manipulation. The bank disputes the charge.
Barclays said its retreat would have no material impact on
its financial results.
In addition to Goldman and Morgan Stanley, Bank of
America-Merrill Lynch also remains a big firm in the
U.S. energy industry and Citi has expanded its commodity trading
over the past year, sources said, while Commonwealth Bank of
Australia has expanded its commodities financing.
Asian-Pacific and South American banks, including
Australia's Macquarie Bank Ltd and Sao Paulo-based BTG
Pactual Banking Ltd, are also growing their commodities
(Additional reporting by Jonathan Leff and Jan Harvey; Editing
by Veronica Brown and David Evans)