US bank Citigroup Inc said it has withdrawn from metals financing in China after suspected fraud that led to a web of lawsuits. But while the bank retreated in that area, it still managed to achieve broad growth in commodities as others withdrew from the sector.
Last month, Citigroup failed in a bid to win an order from a London court that would force trade house Mercuria to pay about $270 million in potential losses for metals financing deals in China hit by the suspected fraud.
"There's no question that when we look at a situation like that, we do a lot of analysis about who we are doing business with, where we're doing business and what kind of transactions we do," Jim Cowles, chief executive of the bank for Europe, Middle East and Africa (EMEA) told Reuters.
"That has lead us to examine each one of those areas and we've made changes accordingly." he told Reuters in an interview this week. Cowles did not give further details, but a spokesman said the bank no longer has any metals financing business in China.
The complex court case was one of a web of legal actions filed in the wake of a probe launched in May 2014 by Chinese authorities of suspected fraud at China's Qingdao port, the world's seventh busiest, and nearby Penglai.
The alleged fraud is estimated to have stung Western banks and trading houses as well as local Asian banks for more than $3 billion in total, according to industry sources.
Neither Citigroup or Mercuria Energy Trading Ltd is accused of fraud, but have been caught in the fallout from the probe.
Citigroup has expanded in commodities, moving as some rivals withdrew due to higher capital requirements and tougher regulation in the wake of the global financial crisis.
"If you look at what we had within the institutional business on commodities, we didn't have that much of a presence.
We decided that we wanted to build that business and we're doing it at the same time our competitors had historic businesses that they had to get out of," Cowles said.
Citigroup's commodity revenue doubled last year after soaring 230 percent in 2013. It does not provide outright revenue figures for its commodities business.
The bank moved up to fourth ranking for commodities revenues among top investment banks at the end of 2014 from ninth in 2012, according to financial sector consultancy Coalition.
"Given our footprint across the region, particularly in emerging markets, I think there's a lot to be done with the public sector as well as corporations in terms of different types of commodity products," he said.
"I think that's where we've got a particular advantage in terms of knowing the clients, having that geographic presence.
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