BofA Exits Power, Natural Gas in Europe as Trading Shrinks

Bank of America Corp. will withdraw from Europe’s power and natural gas markets as opportunities shrink and increasing regulation curbs trading.

The number of people at risk of redundancy is “in the low double digits,” John McIvor, a company spokesman in London, said today by telephone, declining to provide further details. The Charlotte, North Carolina-based bank will dispose of its European power and gas inventory and close contracts through a formal sale process, he said.

The firm is following Deutsche Bank AG and Morgan Stanley (MS) in shutting some units trading commodities as prices tracked by Standard & Poor’s last year had their first annual drop since 2008 and electricity prices in Germany slumped 16 percent. The Federal Reserve is reviewing banks’ control of raw-material assets and regulators are demanding they increase reserves to cover potential losses.

“It’s a snowball effect,” said Gary Hornby, a European power and gas market specialist at Inenco Group Ltd. in St. Annes, England, which advices energy buyers including East Midlands Trains Ltd. “Less banks mean less volatility and then more banks pull out of these markets as opportunities dry up.”

Next-year power in Germany, Europe’s biggest economy, fell for a third year as the euro-area recession cut demand and a boom in renewable energy boosted supply. The Standard & Poor’s GSCI (SPGSCI) gauge of 24 raw materials fell 2.2 percent last year.

Reduced demand for European power and gas hedging and regulatory changes contributed to the decision to scale back in Europe, McIvor said.

Carbon Trading

The bank plans to stay in carbon markets, while reducing the scale of its trading, according to three people with direct knowledge of the plan, who asked not to be identified because the plan isn’t public.

The company will continue to trade power and gas in the U.S., “where it has significantly deeper client penetration and the ongoing shale revolution presents significant additional growth opportunities,” McIvor said.

The Dodd-Frank financial overhaul, enacted in 2010, limits trading in over-the-counter commodity swaps as well as exchange-traded futures.

Renewable energy use has cut demand for gas-fired power, which is unprofitable in Germany, the U.K., France and the Netherlands for some periods, according to so-called spark-spread calculators on Bloomberg that use forward prices for power, fuel and carbon permits.

German Power

German power for 2015 dropped as much as 0.6 percent to 35.80 euros ($48.80) a megawatt-hour today, according to broker data compiled by Bloomberg. That’s the lowest for a next-year contract since 2005, according to Marex Spectron Group Ltd.

The decline in forward power prices has cut profits at German power generators. RWE AG, the country’s second-largest utility, said Nov. 14 that earnings will drop by almost half next year as electricity prices fail to recover.

EON, Germany’s biggest utility, cut staff at its global commodities unit by 33 percent this year to 1,468 as of Sept. 30, the company said Nov. 13.

To contact the reporters on this story: Mathew Carr in London at m.carr@bloomberg.net; Rachel Morison in London at rmorison@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net

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