Barclays pulls down shutters on European, U.S. power trading desks

Jeanine Prezioso

Britain’s Barclays Plc said on Tuesday it has closed its power trading desks in London and New York, joining a string of global investment banks that are paring down their commodity market activities as increased regulations bite.

Barclays, a top-five banking player in commodities trading which is in the process of shrinking its investment banking activities, said its “core commodities franchise continues to operate business as usual”.

“We will continue to actively manage our existing books to minimize any impact on our clients’ business,” the bank said in a statement.

Like other large investment banks, Barclays faces regulatory pressure to shore up capital and curb proprietary trading, which has eaten into profits and driven top trading talent to privately-held commodity trading houses.

Barclays has reduced its activity in the power trading sector in recent years. It scaled back its European energy desk in 2013 when its head of energy research left the company.

“It isn’t a surprise. This has been coming our way for a while as the power desk has been getting smaller for some time now,” said one source with the bank’s energy business.

“With all the other banks exiting, it was almost a surprise that we held on so long.”

The exodus continued at the start of 2014, with James Grove, the Barclays’ head of commodities in Asia, leaving the bank in January. London-based managing director for power trading Patrick Barouki also left during the latest rounds of departures, sources have said.

The 10 or so employees on London and New York desks will remain with Barclays for the time being, a source familiar with the bank said.

Barclays has cut its commodities trading staff by more than 20 percent, sharper reductions than those seen in its fixed income, currencies or equities trading.

It plans to shed hundreds more jobs in its investment banking division this year.

Five months ago, the U.S. Federal Energy Regulatory Commission (FERC) filed a lawsuit in a California federal court to recover some $435 million from Barclays for alleged power market manipulation, a charge which the bank disputes.

A Barclays spokesman said on Tuesday its decision to exit the power market had nothing to do with FERC’s action.

He referred to an earlier statement from the bank that said it believes its “trading was legitimate and in compliance with applicable law”.

ROUGH RIDE FOR BANKS

Moves by investment banks to cut their commodities businesses in the last two years have shrunk the market’s size and left less liquidity to lure a broad base of investors.

Total global commodity assets under management fell to $319 billion in December 2013 from $332 billion in November 2013, Barclays Capital said in a research note earlier this month.

Revenue from commodities for top banks fell to $4.5 billion last year from $5.5 billion the previous year, London-based financial industry analytics firm Coalition said in a report earlier this month.

Deutsche Bank started reducing its exposure by closing down European power and gas desks at the end of 2012 and a year later decided to fully shut down commodities trading.

Morgan Stanley sold the majority of its physical oil trading business to Russia’s state-backed energy major Rosneft.

The bank, along with Citigroup, will remain in power and gas markets though the exodus of others means greater dominance by utilities and trading houses and less appeal for investors.

At least one large commodity merchant lamented the loss of banks in the natural resources chain, even as the merchants pick up some of their market share.

The head of the world largest oil trader Vitol, Ian Taylor, said this month he regretted banks were leaving the sector as they were the necessary providers of liquidity in the forward market for hedging purposes.

“I don’t think we will lose them all. Goldman Sachs said they gonna fight on and I hope they do,” he said.

Reuters