Friday, January 22

BNP Paribas pulls back from financing commodity traders – Financial Times

BNP Paribas is pulling back from financing commodity traders in Europe, the Middle East and Africa after a series of heavy losses in its specialist lending unit.

The Paris-based bank has been hit by losses at several commodity trade houses this year, including Coex Coffee in the US, as well as GP Global Group and Phoenix Commodities in the Middle East. It has told clients it has paused lending to such business within Emea, according to several people briefed on the talks.

The bank is also considering closing its specialist commodity trade finance unit based in Geneva, which has struggled to be profitable for several years, as part of a long-running review of its investment bank. BNP had previously weighed up relocating the unit, which has 75 staff, to its Paris headquarters.

But the suspension of trade financing in the Emea region, first reported by Bloomberg, will not affect BNP’s wider commodities businesses, which include derivatives sales and trading as well as futures and clearing, according to a person briefed on the bank’s plans.

Phoenix Commodities, a Dubai-based rice trader, collapsed in April after accumulating $450m of losses on currency hedges that it blamed on a rogue trader. BNP is one of several banks to face potential losses on the collapse, including a specialist lender owned by the British industrialist Sanjeev Gupta.

BNP declined to comment.

The French bank was once among the biggest names in commodity trade finance, pioneering some of the products that helped the development of the oil trading industry.

But after it was fined $8.9bn by US authorities for conspiring to violate sanctions that prohibit transactions with Sudan and other regimes, it retreated from oil trading to focus on smaller markets such as agriculture. As a result its lending book has shrunk dramatically over the past decade.

Industry executives say the bank is now a third-tier player and its decision to halt financing commodity traders would not seriously affect the availability of credit. One compared its departure to that of a regional bank.

Last week BNP beat analyst expectations with a surge in second-quarter fixed income trading revenues and lower than forecast provisions for bad loans. The bank announced net income of €2.3bn on revenues of €11.7bn.

The bank has embarked on a push to become the dominant force in European investment banking, extending its balance sheet by €500bn during the spring by underwriting loans to clients hit hard by the coronavirus crisis.

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