Deutsche Bank pulled the plug on its global commodities trading business on Thursday, cutting 200 jobs as it becomes the first major bank to exit the once lucrative sector due to toughening regulations and diminished profits.
Germany’s largest bank, which was one of the top-five financial players in commodities, said in a statement it will cease trading in energy, agriculture, base metals, coal and iron ore, retaining only precious metals and a limited number of financial derivatives traders. The cuts are expected to largely fall on its main commodity desks in London and New York.
The move comes as the financial sector’s role in commodity trading has been squeezed by lower margins, higher capital requirements and growing political and regulatory scrutiny of the role of banks in the natural resources supply chain.
“The decision to refocus our commodities business is based on our identification of more attractive ways to deploy our capital and balance sheet resources,” Colin Fan, co-head of Corporate Banking and Securities at Deutsche Bank, said in a statement. “This move responds to industry-wide regulatory change and will also reduce the complexity of our business.”
Deutsche Bank’s decision will also raise questions for other banks in the sector, after JPMorgan Chase & Co put its physical commodity arm up for sale this summer, while Morgan Stanley has been exploring a sale of its energy trading unit for almost two years.
Deutsche Bank was among the first financial firms a decade ago to challenge the long dominance of Goldman Sachs Group and Morgan Stanley in commodities trading. But it suffered a series of ups and downs and personnel changes over the years, including the departure of global chief David Silbert a year ago.
Silbert’s departure was the first sign the bank was withdrawing from the one-time billion-dollar business, which included a substantial US and European power and gas book, a major market-making operation in oil options, and base metals trading.
“Silbert built up Deutsche Bank’s commodity group to make it a top five contender in the space of five years and then left rather than pull down the house he built,” said George Stein, managing director of New York-based recruiting firm Commodity Talent. “The destruction of the commodities business at Deutsche Bank is one more sign that many of the large global banks no longer see commodities as viable,” Stein added.
The bank announced the decision to staff at a meeting shortly after lunch on Thursday, with