Citigroup Inc. (C) has taken yet another step in tune with its effort to boost commodities trading operations. The Wall Street Banking giant has purchased commodity trading books of Credit Suisse Group AG (CS). The news was first published by Reuters.
The purchase deal includes the Swiss banking giant’s base and precious metals, freight, coal, iron ore, crude oil, oil products and U.S. and European natural gas books. However, the deal excludes Credit Suisse’s U.S. power trading book.
The latest move follows Citigroup’s recent purchase of the energy and metals book from Deutsche Bank AG (DB). Notably, Citigroup has also acquired the German bank’s oil and power trading books in the last few months. Citigroup’s commodities trading operations focus primarily on oil and oil products, power and natural gas, base metals and precious metals.
On Credit Suisse’s part, the move came as part of the process of winding down its commodities trading business owing to regulatory pressure and lower profits. Notably, in Jul 2014, the Swiss bank announced that it will exit its commodities trading operations and gradually it has shifted such operations in the company’s non-strategic segment. Chief Executive Officer of Credit Suisse, Brady W. Dougan stated then, “The restructuring of our macro business, including the exit from commodities trading, is expected to drive further capital, leverage and expense reductions.”
Apart from Credit Suisse and Deutsche Bank, another European counterpart, Barclays PLC, initiated a similar move as it closed its power trading desks in London and New York in Feb 2014.
Notably, during the first-half of 2014, commodities revenues climbed 21% year over year, per a report released in August by Coalition, a U.K. analytics firm. The Coalition Index relates to the performance of the 10 biggest global investment banks including Citigroup, The Goldman Sachs Group, Inc., Morgan Stanley and Credit Suisse Group AG. Trading in U.S. power and gas benefited from the prolonged winter in the country leading to a rise in raw-material revenues. Also, the market witnessed renewed interests among investors regarding commodities.
In the wake of heightened regulatory and political scrutiny on banks’ ownership of the physical commodity business, several Wall Street biggies including Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) have pulled back their interests in the commodity trading sector. However, Citigroup is treading in the opposite direction. It seems Citigroup’s latest move is in line with its strategy to grow its profitable ventures while divesting non-core assets.
Currently, Citigroup carries a Zacks Rank #3 (Hold).
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