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Natixis plans to shut commodities brokerage unit

05/10/2012 | 10:40am US/Eastern
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French bank Natixis (>> NATIXIS) said it plans to close its commodities brokerage division, as one of the oldest ring-dealing members of the London Metal Exchange becomes the latest victim of the European debt crisis.

French bank Natixis (>> NATIXIS) said it plans to close its commodities brokerage division, as one of the oldest ring-dealing members of the London Metal Exchange becomes the latest victim of the European debt crisis.

The bank decided to wind up the brokerage activities of Natixis Commodities Markets (NCM), which offers derivatives on a range of metals, fuels and commodities, the bank said.

Over-the-counter activities will continue and operate in cooperation with the bank's structured finance operations, which also offer, among other related activities, commodities trade finance.

"This is part of our reduction plan because it is a business which consumes a lot of liquidity," Natixis CEO Laurent Mignon told analysts in a conference call on Thursday.

"We consider that we really don't have the critical size in this business," he added.

The future of NCM, which has been in metals broking under several owners for almost 35 years, had been uncertain since management said in January it was considering selling the unit.

The bank wanted to scale back its exposure to the capital-intensive commodities business. Henrik Wareborn was hired in September to head up the operation.

The 120-strong team in London was told by management of the decision to wind down the brokerage on Wednesday afternoon, a trader who had spoken to an NCM trader told Reuters.

"They were told it's over. The business will be liquidated in an orderly fashion," the trade source said.

Natixis LME traders have been given three-months' termination notice, another ring-dealing trader said.

The move will effectively dismantle the ring-dealing team on the London Metal Exchange trading floor and will start the process of liquidating customers' accounts.

Closing accounts is expected to take until the end of the year, the source said.

Natixis may keep its LME membership and downgrade it to a lower category that does not allow ring-dealing activities, a Natixis spokesman said.

Natixis is not the only French bank to adjust its business model.

In the past six months, Credit Agricole (>> CREDIT AGRICOLE), BNP Paribas <BNPPS.UL> and Societe Generale (>> SOCIETE GENERALE) have all taken steps to cut exposure to dollar financing, reduce debt and boost capital ratios amid concern about the euro-zone debt crisis.

The bank may be hoping for rich proceeds if it decides to sell its 250,000 Category A shares in the LME, which are worth $17 million based on recent sales, but it may also keep them as an investment, market sources said.

The LME, the world's last member-owned exchange, is considering bids from four of the world's major exchanges, which are said to be in fierce competition to buy the 135-year old entity.

LONG HISTORY

Removing NCM will cut the number of brokers, dealers and banks participating in open-outcry trading in the LME ring to 11.

It will be the first closure of a Category I seat for several years, with most memberships typically changing hands as a result of a takeover or a merger.

The newest member, INTL FCStone Inc (>> INTL Fcstone Inc), bought its seat from the liquidator of collapsed MF Global and JPMorgan Chase secured its membership as part of its acquisition of the RBS Sempra commodities business in 2010.

NCM's roots go back more than 30 years when it was owned by Sogemin Metals, the London brokerage unit of the Union Miniere Group (now Umicore SA (>> UMICORE (D))), which mined for copper in what is now the Democratic Republic of Congo more than a century ago.

Union Miniere only broke ties with Sogemin in 2000 when it sold the company to Natexis Banques Populaires, a unit of the Banques Populaires group. The business was renamed Natixis Commodity Markets when it merged with IXIS in 2006.

The NCM ring team is relatively new by LME standards - some key members, including Stuart Neville, left to join ED&F Man in 2007.

But many of the back office staff, including account executives, have been with the company since the Sogemin days. ED&F also hired Udo Klein and Aaron Begner in New York from the broker at the end of March.

Some high-profile senior members of the metals industry have worked for the broker in its various guises, including LME chief executive Martin Abbott and Triland chief Martin Pratt.

(Additional reporting by Eric Onstad in London, Editing by Robert Birsel, Veronica Brown and Helen Massy-Beresford)

By Josephine Mason and Sybille de La Hamaide

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