Citi jumps on commodity financing opportunity
Citi is taking advantage of the gap left by European banks with the launch of its new commodity trade finance unit.
The American bank believes it is in the right position to provide commodity financing services, as European banks short in US dollar liquidity have withdrawn from the market.
John Ahearn, global head of trade at Citi, tells GTR: “With the implementation of Basel III globally, what we’re seeing is that many of the European banks are being forced to deleverage quite significantly, they’re leaving different parts of the business sector, including commodities trade finance, so we think that there’s a competitive advantage for us to use that space at this time because we have an opportunity to take some market share.
“Depending on which statistics you use, 70 to 85% of the world’s trade flows is financed in US dollars. Because we are a US bank we have access to a significant amount of US dollars, we don’t have the same issues that the European and other banks have, so that’s another competitive advantage.”
He adds that Citi already works with large producers, banks and offtakers, but hasn’t really played in the middle sector of intermediaries such as broker-dealers yet. “With Basel III there’s a unique opportunity for us to lever that space where we don’t bank today and gain some significant market share.”
Citi’s commodity financing business will initially focus on the energy sector and is already doing a variety of transactions with “significant oil traders”, but aims to move on to metals, mining and soft commodities within three years.
“It fits into our franchise better; we have franchises in Australia, South Africa and Brazil for example for the metals and mining sector so we have a natural synergy there. In the soft commodities we also have good access but the network penetration is not as deep as it is in the metals and mining.”
The bank has hired Kris Van Broekhoven from Deutsche Bank to head the unit, and confirms to GTR that it will make more appointments in this space.
Citi is also expanding its export credit agency (ECA) business team headed by Valentino Gallo, with the appointment of Ae Kyong Chung as global head of export and agency finance distribution. The bank has also recruited Georges Romano as regional head of export and agency finance for Latin America.
“Citi is number one in the world in ECA financing, and this business is growing dramatically, as capital markets aren't as efficient as they used to be – this is evidenced by the reauthorisation of US Exim earlier this year. We have strengthened our Latin America team, and at the moment the banks come in and hold assets, but the business model has to change there, holding all of the assets on the banks’ balance sheet is not the right way anymore, banks need to bring in new investors and distribute their assets more.
“There will also be appointments in the ECA business, but not in the pure booking hold kind of business; it will be more on the origination side,” Ahearn adds.