Credit Suisse Sees Commodities Opportunity as Banks Retreat

May 23, 2014 11:21 am ET

(Updates with comment on market impact from banks pulling back from penultimate paragraph.)

May 23 (Bloomberg) -- Credit Suisse Group AG said it remains committed to commodities and sees “strategic opportunities” as banks including Barclays Plc and Deutsche Bank AG retreat from the field.

The bank is seeing more business in industrial metals after some competitors pulled out, Paul Hawkins, global head of commodities at Credit Suisse, told reporters in London yesterday. Market-making and liquidity in the European and U.S. power, industrial metals and bulk commodities areas suffered the most as the banks retreated, he said.

“The landscape is certainly changing within banking,” Hawkins said. “The challenge for banks involved in commodities is to adapt their business models in a way which meets client needs and is in line with regulatory requirements.”

Politicians and regulators have pressed banks to cut back their commodities activities, while reduced raw-materials volatility and client interest eroded earnings. Barclays said last month it plans to withdraw from most of its global raw- materials activities, and Deutsche Bank and Bank of America Corp. also are cutting back. JPMorgan Chase & Co. and Morgan Stanley are selling units.

“We remain committed to commodities,” Hawkins said. “We also think that, as some players pull back in the space, there are strategic opportunities for the bank.”

New Limits

The U.S. Federal Reserve has said it’s considering new limits on trading and warehousing of physical commodities. Policy makers are seeking comment on ways to restrict ownership and trading of commodities such as oil, gas and aluminum by deposit-taking banks. New global capital rules also increased the cost to banks of holding commodities.

Banks pulling back from commodities is reducing liquidity and impacting the markets, said Kamal Naqvi, Credit Suisse’s global head of metals trading and head of commodities sales in Europe, Middle East and Africa.

“Banks leaving means there are fewer participants able and willing to make markets,” Naqvi said. “Banks have historically been the most consistent provider of commodity volatility to the market, but with some banks pulling out then reduced market liquidity could exaggerate moves, in price, in spreads, and particularly in volatility.”