Deutsche Bank AG is cutting about 200 commodities jobs, joining the world’s largest financial firms in reducing headcount to the lowest since 2009 as prices for everything from energy to metals head for the first annual drop since the recession.
Europe’s top investment bank will exit dedicated energy, agriculture, dry bulk and base metals trading and transfer its financial derivatives and precious metals desks to the fixed income and currencies division. The move will have “no material impact” on earnings, the bank said in an e-mailed statement yesterday. Total headcount in commodity units at the 10 largest banks stood at the lowest since at least 2009 as of September, according to analytics company Coalition.
Frankfurt-based Deutsche Bank is joining JPMorgan Chase & Co. and Morgan Stanley in cutting back after investors pulled a record $34.1 billion from commodity funds globally since last December and prices tracked by Standard & Poor’s head for their first annual drop since 2008. The Federal Reserve is reviewing banks’ control of raw-material assets and regulators are demanding they set aside more reserves to cover potential losses.
“Commodities is a cyclical business,” said George Kuznetsov, the head of research at Coalition, a London-based analytics company. “Banks with a higher focus on institutional clients will scale their businesses back to key products, while larger corporate franchises will continue to be active across a broader set of products.”
About 200 people will lose their jobs or get moved to a different company, if Deutsche Bank can sell the businesses they work for, said a person familiar with the moves, who asked not to be identified because the information isn’t public. Commodities except for derivatives and precious metals will be transferred to a special commodities group and commodities co-heads Louise Kitchen and Richard Jefferson will oversee the winding down of the physical business, which could take as many as two years, according to a person familiar with the plan.
Deutsche Bank’s investment banking and trading unit, which includes commodities, employed 25,062 people at the end of September, according to company filings.
Total headcount in commodity units at the 10 largest banks, from Goldman Sachs Group Inc. to Deutsche Bank, stood at 2,290 at the end of September, about 4 percent less than at the end of 2012, the lowest since at least 2009, when the Coalition data begins. The banks will receive 14 percent less revenue from commodities this year, Coalition said in a report.
“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 Deutsche Bank’s investment banking and trading unit, said in the statement. “This move responds to industrywide regulatory change and will also reduce the complexity of our business.”
Grupo BTG Pactual, the Brazilian investment bank founded by billionaire Andre Esteves, plans to start commodity trading in Singapore next year, according to three people with direct knowledge of the matter.
JPMorgan, the biggest U.S. bank by assets, said in July it plans to get out of the business of owning and trading physical commodities ranging from metals to oil. The bank, which has sought $3.3 billion for its physical commodities business, is closing its energy-trading business in Geneva, cutting or relocating about 12 jobs, according to a person with direct knowledge of the matter.
Morgan Stanley cut 10 percent of its workforce in the commodity division this year and is in talks to sell its global oil business to OAO Rosneft, Russia’s largest petroleum producer. Goldman Sachs has put its uranium-trading unit up for sale and received inquiries from potential buyers for its metals warehouse operator, people briefed on the matter said last month.
JPMorgan generated the most first-half revenue from commodities among the top 10 financial firms, followed by Goldman Sachs and Morgan Stanley, Coalition estimates.
Deutsche Bank generated 1.29 billion euros ($1.75 billion) from trading fixed income, currencies and commodities in the third quarter, accounting for 43 percent of the revenue from investment banking and trading, company filings show. It doesn’t publish stand-alone figures for the commodities arm.
The bank generated $881 million in commodities revenue in 2012, according to a JPMorgan report on April 11. Kitchen and Jefferson replaced former commodities head David Silbert, who left the bank. Deutsche Bank dismissed power and gas traders in the U.S. last year as part of the 1,900 job cuts.
European banks, which eliminated more than 140,000 jobs in two years, may cut at least 5 percent of trading and advisory staff next year, according to a survey of three London-based investment-bank recruiters, and the reductions could reach 15 percent, two of them said. That would be twice the 7 percent shrinkage across the industry since 2011.
The Standard & Poor’s GSCI gauge of 24 raw materials fell 2.5 percent this year amid rising supply of commodities from corn to copper. The MSCI All-Country World Index of equities climbed 16 percent, and the Bloomberg U.S. Treasury Bond Index declined 2.8 percent.