LONDON – (Reuters) – Stick, twist or fold? Like card players, the top five banks in global commodities trade have reached the point where they must decide to hold strategy, adapt, or give up and get out.
The boom in resource markets that started 10 years ago attracted many big banks to trade oil, metals and agriculture, but the 2008 financial crisis forced a painful retreat and tighter regulation now means some banks may throw in the towel.
Decisions rest on whether the banks believe their business models can be changed to keep them sufficiently profitable under the rising oversight of regulators, after four years when their revenue from commodities was halved.
“The total wallet back at the peak was about $14 billion for the banking sector in commodities trading. I’d imagine this year it’ll be about $7 billion. There were 10-14 banks when it was at $14 billion, now there are really five relevant ones,” said David Silbert, who leads commodities trading at Deutsche Bank.
Deutsche, together with Barclays and J.P. Morgan, broke into the commodities arena in the last decade with acquisitions or aggressive growth to challenge established veterans Goldman Sachs and Morgan Stanley.