Reuters logo
Oil party gloss hides empty desks at European banks
February 23, 2012 / 3:25 PM / in 6 years

Oil party gloss hides empty desks at European banks

LONDON, Feb 23 (Reuters) - Vintage champagne flowed at bank parties during the oil market’s annual party season in London this week, but behind the smiles European banks are struggling in oil and commodities.

Despite healthy profits in the sector, the region’s banks are cutting back or even pulling out of commodities financing and proprietary trading as they strengthen their balance sheets.

All three of France’s top banks, once very strong in commodities, have tightened their belts, focusing on what they see as core business as the euro zone debt crisis sweeps through markets. German, Italian and even Swiss banks are scaling back as well.

“We think some of the French and German banks have sliced maybe a third off their books, some more,” said a senior trader at a large European commodities trading house.

There was little sign of austerity at the annual International Petroleum Week in London.

At the Societe Generale party in Mayfair’s elegant Claridges Hotel, 500 traders, fund managers and bankers wandered between magnums of Laurent Perrier and trays of seafood as they chatted of growth.

In recent months, SocGen has shut its U.S. gas and power trading desk, shed a third of its U.S. commodities staff and, traders say, closed many linked operations elsewhere.

Many SocGen staff have left the bank in what its personnel officers have chosen to call “painful adjustments”.

“Growth?,” said one Societe Generale manager, on condition of anonymity. “If that was the impression it gave, the party was successful.”


European banks are steadily pulling out of any activity deemed peripheral or too risky at a time when they are under increasing pressure in credit markets.

For some banks the retreat has been in commodities trading activities, but others have been forced to include the more reliably lucrative commodities trade financing operations as well.

French investment bank Natixis said it would reduce its commodities market activities but would keep its commodities financing business, which its CEO deemed “extremely profitable and successful”.

Traders say BNP Paribas has pulled back but is still lending to the “right names, like the trading houses”.

The irony for oil and commodities traders in a market always thought to be risky is that many types of commodity trade financing are safe as well as highly lucrative, yielding quick profits for the banks that stump up credit for traders.

If, for example, a bank provides a line of credit for an oil tanker, it has hard and very valuable collateral to back its loan. After a three-week voyage, the loan has earned its return.

“If the loan goes wrong, you end up with a very valuable and saleable asset - oil,” said a senior U.S. banker.

But as the euro zone crisis works its way through European banks, they have no choice but to cut their exposure across the board, reducing capital-heavy operations, even if they are lucrative, and especially if they are in a sector deemed risky.

“Somewhere a manager has a lower limit for exposure to every client, which cannot be breached. Balance sheets have to be strengthened,” said another senior banker. “We have no choice”


U.S. banks are moving into European commodity and oil trade financing, with more activity seen by Goldman Sachs, Morgan Stanley and JP Morgan, traders and bankers say.

Julian Mylchreest, global co-head of energy at Merrill Lynch said banks needed to have “a decent-sized base business to have enough liquidity and flow” to serve their clients.

Merrill Lynch was spending “more time than ever before” on some types of commodities business. “We have lost some people, but we have subsequently filled the positions again and expanded our client-facing sales effort,” Mylchreest said.

Citigroup is also expanding its energy trade finance business as its competitors cut back, Stephen Trauber, global head of energy at Citigroup, said last month: “We are aggressively picking up clients and filling the holes.”

One of the holes has been left by French bank Credit Agricole, which has been a major lender to a commodity business it built from its base in agriculture.

Credit Agricole said in December it would stop trading physical commodities altogether and slash its financing of the multi-billion-dollar market.

Credit Agricole’s party was low key. In a dimly lit section of the Dorchester Hotel’s ballroom, 150 staff and guests mingled in a venue booked before December’s announcement. Name badges remained unclaimed and headhunters mingled among the guests.

“Business is good,” said one senior manager from a Swiss placement agency. “I can’t complain.”

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below