* Concerned about long-term profitability, capital
* Has started winding down commodity derivatives business
* Tougher regulation a big factor in decision- source
By Silvia Antonioli and Eric Onstad
LONDON, Feb 6 Japan's Mitsubishi UFJ Securities
International became the latest bank to withdraw from the
commodities sector, hit by weaker investor interest and tougher
The institution said on Thursday it was closing its
international commodities derivatives business due to concerns
about long-term viability.
Higher capital requirements, heavy scrutiny by regulators
and declining investor interest has forced many banks to
withdraw or slash their commodity businesses, while trading
houses are expanding their presence in the sector.
JP Morgan is in the process of selling its physical
commodities unit and Deutsche Bank said last year it
was largely exiting commodity trading.
"We reached the decision after we concluded it's difficult
to continue the operations after considering profitability and
capital efficiency in the long term," said a spokesman in Tokyo
for parent Mitsubishi UFJ Securities Holdings.
The bank has launched the process of winding down its
commodity operations and will continue to handle existing client
transactions, he added.
The spokesman said commodities was a small operation in
terms of the overall investment bank and would not impact on
earnings, declining to give further details.
Mitsubishi UFJ Securities International is an investment
banking arm of Mitsubishi UFJ Financial Group, Japan's
biggest bank, and is separate from trading house Mitsubishi Corp
Mitsubishi UFJ Financial Group Inc reported a 5.5 percent
rise in net profit in the group's latest quarter on Monday,
making up for slowing stock-related earnings with income from
REGULATION BIG FACTOR
A source familiar with the situation said the closure by
Mitsubishi UFJ will affect offices in London, New York and
Singapore, where "tens of people" are employed out of 1,100 at
the investment bank.
"This was a strategic decision. They've decided to close the
commodities business after an extensive review. The complex
regulatory environment was a big factor," added the source, who
declined to be identified.
An internal announcement about the closure was made on
Wednesday, a second source said.
The commodities business was involved in metals, energy and
carbon emissions derivatives trading, according to the company's
Higher global capital requirements under the Basel III
regulatory framework and new restrictions on proprietary trading
introduced to prevent a repeat of the 2008 financial crisis have
made commodity markets less attractive for many banks.
Commodity income at the world's top 10 investment banks has
fallen from a peak of more than $14 billion in 2008 to just $5.5
billion in 2012, according to London-based consultants
Commodity investment assets lost $88 billion in value
through November 2013 to $332 billion, the largest decline for
the first 11 months of the year on record, from a combination of
investor exits and from price drops that took place mostly in
gold, Barclays said in December.