An exclusive club of banks that has long dominated commodities trading is opening up as some big players shrink, allowing rivals to expand their trading teams in anticipation of better profits when the global economy picks ups. Higher costs due to tighter regulations and rapidly inflating pay for dealers have combined in recent years with an overcrowded market and low price volatility to undermine profitability in trading oil and metals.
But some cost pressures are now easing as salaries drop to more realistic levels, while the banks are no longer trying to emulate major energy groups or specialist trading houses and are instead strengthening their services to commodities clients. Banks such as Citi, which had to retreat during the financial crisis, are now building up their commodities teams. The top five established players - Goldman Sachs, Morgan Stanley, JP Morgan, Barclays and Deutsche Bank - face a challenge to their supremacy. Despite a recent exodus of staff to trading houses that pay more and are regulated less, banks believe commodities can still generate healthy returns when the regulations become clearer and markets turn in their favour.
"The gap between top and second tier players has narrowed significantly, benefiting the banks with a large and diversified client base and access to balance sheet, and making it a much more level playing field," said Jose Carlos Cogolludo, managing director and head of commodities sales at Citi.
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