Following the footsteps of other major global banks,
) is moving away from commodities market. As per a report first
The Financial Times
, the company has closed its power trading desks in London and
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Amid tightened regulations and lower profits, Barclays continues
to restructure its commodities business. In 2013, the company
moved away from the western U.S. power markets and at present,
the other commodities operations are under review as part of its
Notably, last year, the Federal Energy Regulatory Commission
(FERC) ordered Barclays to pay $488 million in fines and
penalties for the alleged manipulation of energy markets in
Western U.S. from 2006 to 2008. However, the company decided to
challenge the order. The final decision of the court regarding
this is still pending.
Barclays' decision to close power trading desks in the U.S. and
Europe is not solely based on the above-mentioned case. Commodity
trading, once the looked upon favorably by major banks, is fast
losing its shine owing to stringent regulatory checks and
unfavorable market conditions.
Further, the banks have to maintain a higher level of reserves to
cushion possible losses in the commodity market. Moreover, the
amount of raw material/energy resources that can be held by these
banks is under the Federal Reserve's scrutiny. Barclays had
received the Fed's approval to trade in the commodities market in
Similar to Barclays, from the past one year, other banks such as
Bank of America Corp.
), Deutsche Bank AG,
JPMorgan Chase & Co.
) are winding down the commodities businesses.
We believe that Barclays' move is a step in the right direction.
The bank had reported a 42% decline in adjusted net income for
2013 due to substantial fall in investment banking revenues.
Further, the company had announced nearly 12,000 job cuts to
boost profitability and focus on core operations.
All these steps are expected to yield results going forward.
Further, Barclays will likely be well positioned to meet
regulatory requirements and remain profitable.
Currently, Barclays has a Zacks Rank #3 (Hold).