Analysis: Canada banks steal quiet march as Wall Street retreats from energy

Thu Dec 19, 2013 11:53am EST
 
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By Nia Williams

CALGARY, Alberta (Reuters) - As Wall Street's giants pull back from the energy business, Canadian banks are stepping forward, aided by booming domestic oil production and a reputation for prudence.

Bank of Montreal (BMO.TO: Quote), Canadian Imperial Bank of Commerce (CM.TO: Quote) and Bank of Nova Scotia BNS.TO, long-time niche players in energy trading, hedging and dealmaking, are expanding their operations both north and south of the U.S. border, executives told Reuters.

In total, commodity trading revenues at the three banks rose by 30 percent last year, according to a Reuters review of their annual reports. Executives say it has been a struggle to match that performance this year, but that they are still gaining ground.

"We have been able to pick up market share not only in our home market but able to rapidly grow our business in the U.S. and overseas in places like the North Sea," said Adam Waterous, a veteran oil banker who heads Scotiabank's global investment banking team, which is based in Calgary, Canada's oil capital.

With their reputation for caution, Canadian banks say they are unlikely to copy their U.S. counterparts and start amassing physical assets such as metal warehouses or oil storage terminals. Big Wall Street banks including JPMorgan Chase & Co. (JPM.N: Quote) and Morgan Stanley (MS.N: Quote) are looking to sell their physical trading desks as regulatory scrutiny increases and returns diminish.

"This is the fourth time in my career I have seen Americans come and go," Waterous said.

Scotiabank is by far the biggest commodity trader in Canada, due in large part to its long-held ScotiaMocatta precious metals venture. Scotia reported a 26 percent rise in commodity trading revenues to C$425 million ($397 million) last year.

Of the other "Big Five" Canadian banks, Toronto-Dominion Bank (TD.TO: Quote) does not break out commodity trading revenue figures, but Royal Bank of Canada's (RY.TO: Quote) trading revenues for foreign exchange and commodities climbed by 11 percent last year.   Continued...

 
The logo for the Bank of Montreal is seen at its branch Toronto, March 5, 2013. REUTERS/Mark Blinch