NEW YORK (Reuters) - Freepoint Commodities is in talks with banks on structured finance deals that combine the U.S. commodity merchant’s expertise in handling physical metals and crude oil with banks’ deep financial firepower, executives said.
If agreed, these deals would mark the latest shift in the commodity trading landscape as banks adjust how they operate in commodities markets amid scrutiny from regulators concerned about the risks of physically handling crude and metals.
“We’re in discussion with some banks for deals where we would handle the physical trading and they would provide the financing,” Chief Executive David Messer told Reuters Commodities Summit this week.
“Right now it’s deal specific, but I’d be surprised if there weren’t more of this kind of thing.”
For Freepoint, it would be a new avenue for revenue four years after former Sempra oil executives, including Messer who ran Sempra Commodities for ten years, founded the business to create a diversified physical commodities merchant.
These kinds of deals would also allow banks which have experience financing mining or drilling projects but little expertise in handling physical copper cathode and barrels of crude, to get involved in the potentially lucrative but complex market, Philip Bacon, global metals trading chief, said.
“These are banks that have never been in the physical business in a strong way, (and) banks who are in project finance and finding it hard are looking for alternative types of structures,” he said.
Facing smaller margins and stiffer oversight of banks’ involvement in physical commodities, big investment banks such as JPMorgan Chase & Co, Deutsche Bank and Barclays have exited or scaled down their businesses.
These deals would allow banks to remain in the sector despite those tougher requirements.
Reporting by Josephine Mason; editing by Andrew Hay