February 6, 2014 / 11:59 AM / 5 years ago

Mitsubishi UFJ Securities International to close commodity ops

LONDON (Reuters) - Japan’s Mitsubishi UFJ Securities International became the latest bank to withdraw from the commodities sector, hit by weaker investor interest and tougher regulation.

A pedestrian walks past a logo of Mitsubishi UFJ Securities in Tokyo February 3, 2009. REUTERS/Yuriko Nakao

The institution said on Thursday it was closing its international commodities derivatives business due to concerns about long-term viability.

Higher capital requirements, heavy scrutiny by regulators and declining investor interest has forced many banks to withdraw or slash their commodity businesses, while trading houses are expanding their presence in the sector.

JP Morgan (JPM.N) is in the process of selling its physical commodities unit and Deutsche Bank (DBKGn.DE) said last year it was largely exiting commodity trading.

“We reached the decision after we concluded it’s difficult to continue the operations after considering profitability and capital efficiency in the long term,” said a spokesman in Tokyo for parent Mitsubishi UFJ Securities Holdings.

The bank has launched the process of winding down its commodity operations and will continue to handle existing client transactions, he added.

The spokesman said commodities was a small operation in terms of the overall investment bank and would not impact on earnings, declining to give further details.

Mitsubishi UFJ Securities International is an investment banking arm of Mitsubishi UFJ Financial Group (8306.T), Japan’s biggest bank, and is separate from trading house Mitsubishi Corp (8058.T).

Mitsubishi UFJ Financial Group Inc reported a 5.5 percent rise in net profit in the group’s latest quarter on Monday, making up for slowing stock-related earnings with income from overseas lending.


A source familiar with the situation said the closure by Mitsubishi UFJ will affect offices in London, New York and Singapore, where “tens of people” are employed out of 1,100 at the investment bank.

“This was a strategic decision. They’ve decided to close the commodities business after an extensive review. The complex regulatory environment was a big factor,” added the source, who declined to be identified.

An internal announcement about the closure was made on Wednesday, a second source said.

The commodities business was involved in metals, energy and carbon emissions derivatives trading, according to the company’s website.

Higher global capital requirements under the Basel III regulatory framework and new restrictions on proprietary trading introduced to prevent a repeat of the 2008 financial crisis have made commodity markets less attractive for many banks.

Commodity income at the world’s top 10 investment banks has fallen from a peak of more than $14 billion in 2008 to just $5.5 billion in 2012, according to London-based consultants Coalition.

Commodity investment assets lost $88 billion in value through November 2013 to $332 billion, the largest decline for the first 11 months of the year on record, from a combination of investor exits and from price drops that took place mostly in gold, Barclays said in December.

Reporting by Silvia Antonioli, Eric Onstad, Clara Denina and Taiga Uranaka; Editing by Dale Hudson and Anna Willard

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