Like card players, the top five banks in global commodities trade have reached the point where they must decide to hold strategy, adapt, or give up and get out.
Reuters reports that the boom in resource markets that started 10 years ago attracted many big banks to trade oil, metals and agriculture, but the 2008 financial crisis forced a painful retreat and tighter regulation now means some banks may throw in the towel.
Decisions rest on whether the banks believe their business models can be changed to keep them sufficiently profitable under the rising oversight of regulators, after four years when their revenue from commodities was halved.
'The total wallet back at the peak was about $14 billion for the banking sector in commodities trading. I'd imagine this year it'll be about $7 billion. There were 10-14 banks when it was at $14 billion, now there are really five relevant ones', said David Silbert, who leads commodities trading at Deutsche Bank.
Deutsche, together with Barclays and J.P. Morgan, broke into the commodities arena in the last decade with acquisitions or aggressive growth to challenge established veterans Goldman Sachs and Morgan Stanley.
J.P. Morgan's entry charge to the club was the $1.7bn it paid to buy trading house Sempra and its infrastructure to store and ship oil and metals.
Today, the five banks control 70% of the commodities trading pot with the rest split between mid-sized players such as Credit Suisse and Bank of America/Merrill Lynch, the latter having fallen out of the top division since the financial crisis.
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