BNP Paribas SA is shutting its Swiss commodity trade finance business, exiting a sector it once dominated but has been hit by a series of massive frauds.
The former Paribas investment bank's office in Geneva helped pioneer the use of letters of credit to finance oil trading in the 1970s, and became one of the leading lenders to the industry. However, BNP Paribas had been shrinking in commodity trade finance since 2014, when it was fined $8.9 billion for violating U.S. sanctions.
The plan could impact as many as 120 employees in its Geneva offices, the French bank said in a statement late Tuesday.
By digitising the large amount of contracts, letters of credit, invoices and other paperwork currently sent around the world by email, fax or post, and putting them on the Ethereum blockchain platform, they are hoping that the new platforms will lead to faster, cheaper and more secure ways of completing a trade as well as settling the transaction
Energy traders and banks back new blockchain platforms
Aim is to provide faster, cheaper and more secure ways of completing trades
A group of the world's leading energy traders and banks is looking to shake up the centuries-old trade finance industry with the launch of two new platforms underpinned by blockchain technology.
Move leaves bank without a physical presence in city home to the world's largest oil & commodity traders.
Commodity desk set to be moved to London.
Bloomberg reports:
Standard Chartered Closes Geneva Commodity Office Amid Oil Rout
Standard Chartered Plc is closing its office in Geneva, the global center of the commodity-trading industry, in Chief Executive Officer Bill Winters's latest move to slash the lender's exposure to the oil, gas and agricultural industries.
While the bank says commodities trading and agribusiness, or CTA, will continue to be a "core activity," it will be transferred to London as "a consequence of our decision to reduce our overall exposure to commodity-related clients," the bank said in a statement in response to questions. Closing the Geneva office, which opened in 2007, "marks the end of Standard Chartered's client coverage from Switzerland," it said.
The move leaves Standard Chartered without a physical presence in a city home to the world's largest oil traders, including Vitol Group and Mercuria Energy Group Ltd. Traders accounted for $20 billion of Standard Chartered's $40 billion commodity exposure last year, down from $33 billion during 2014, according to its annual report.
Plunging Oil
Winters is undertaking a root-and-branch overhaul of the struggling firm, which made itsfirst annual lossin more than a quarter of a century last year. The CEO had to raise $5.1 billion of capital to shore up its balance sheet amid spiraling losses from loans made during the commodity boom, and has also replaced its entire senior management team while pledging to cut 15,000 jobs and restructure or ditch about $100 billion of assets.
Since mid-2014, the lender has reduced its exposure to commodities by about a third, company filings show, as the price of oil plunged by more than 50 percent from more than $100 a barrel to less than $40. It had $20.4 billion of total exposure to traders at the end of last year, about 8 percent of its $261 billion of loans.
"The key risk for traders, which are less directly affected by price changes, is lack of liquidity and their risk-management practices," the bank said in its annual report. Loan impairments almost doubled to $4 billion in 2015, the highest ever.
While oil and gas accounts for the lion's share of Standard Chartered's natural resource exposure, Winters's review has drilled down as far as its tiny $2 billion diamond portfolio, where he'sdemandingthat borrowers find insurance, provide collateral or repay their debts.
