MELBOURNE (Reuters) - Australia’s Macquarie Group, a rising commodities bank powerhouse due to its turn towards the energy sector, is paring back its aggressive lending against metals, three sources familiar with the matter told Reuters.
Macquarie, which this year broke into the top three banks for commodities, has trimmed back its loans against physical metals inventories, in particular a type of finance called repurchase deals or repos, two Asia-based customers and a source familiar with the matter said.
Macquarie combines this commodities business with financial markets and energy under an overall “Commodities and Global Markets” umbrella, which accounted for 21 percent of the bank’s A$2.2 billion ($1.7 billion) in profit for the year to March 31.
A source with knowledge of the matter said Macquarie saw repo-only deals as taking up too much capital and holding too much compliance risk for slim returns, but that the bank was still offering repos in broader packages of services such as finance for hedging or offtake.
The move comes after other banks including Australia and New Zealand Banking Group have retreated from the capital intensive metals sector and as Macquarie focuses on its thriving energy business.
Banks that finance metal are also reviewing procedures after a warehousing fraud rocked the sector in February, echoing the 2013 Qingdao scandal that wiped an estimated $2 billion from the industry.
“The recent increase in allegations of warehouse fraud around the marketplace has understandably had them reviewing the risk-return of the repo business,” the source familiar with the matter said.
Macquarie declined to comment.
Macquarie’s focus on energy over the much smaller metals and agriculture businesses has come under Nick O’Kane, who was appointed to Macquarie’s executive committee this year. O’Kane had previously headed Macquarie’s energy business.
Macquarie has significantly expanded its U.S. energy operations in recent years to become the largest non-producer marketer of physical gas in North America.
ANZ followed a well-worn road out of metals earlier this year, in the wake of exits by Deutsche Bank and Barclays.
The bank’s metals business has also slowed after a string of traders and executives departed, sources said. Six members of the Macquarie metals team have left this year.
Matthew Forgham, a director with Macquarie in London, will retire from the bank this month, according to Metal Bulletin. Forgham did not respond to a LinkedIn request for comment.
Forgham is the second member of the London metals team to leave this year.
Macquarie’s Sydney-based head of metals and mining, Sebastian Barrack, left Macquarie in April after more than two decades to join hedge fund Citadel. Guy Keller, formerly head of base metals trading for Asia, left in June.
Two other traders have left Macquarie’s Singapore metals desk since July.
Macquarie has begun at least partially to rebuild its team. It has shifted one trader to Singapore from Shanghai and moved another to London from another office. The Financial Times reported this week that the bank has also hired metals and mining analyst Tom Price from Morgan Stanley.
Reporting by Melanie Burton in MELBOURNE and Paulina Duran in SYDNEY; Editing by Tom Hogue