LONDON – Barclays is halting agricultural trading with hedge funds in a move to burnish its reputation amid a major overhaul, but will still market index-linked investment products in the sector.
The British bank is among several financial institutions to have come under fire for speculating on grain and other agriculture products, which critics say has pushed up food prices and fuelled unrest in some poor countries.
Chief Executive Antony Jenkins told a news conference on Tuesday the bank was exiting speculative trading in softs and agriculture due to "reputational reasons", but was sticking with the overall commodities sector.
A source close to the situation later clarified that the bank was only stopping softs and agricultural trading with hedge funds.
"We are not stopping trading in agriculture commodities or softs. We're going to continue to provide a service to our corporate... clients, what we're doing is we're stopping trading with hedge funds," said the source, who declined to be identified.
Barclays has a strong business in derivatives linked to commodity indices, including subsectors ranging from metals to agriculture, and this business would continue, the source added.
Although Barclays is one of the top five banks in commodities - which together are estimated to control about 70 percent of the commodities trading pot - agricultural trading has not been a major area for it.
One trader who specialized in agriculture departed Barclays last week during the reorganization, an industry source said.
The British bank along with Deutsche Bank and J.P. Morgan built up commodities in the past decade to challenge established veterans Goldman Sachs and Morgan Stanley.
The move in commodities is part of a wider shake-up in which the bank is shedding at least 3,700 jobs and pruning its investment bank, aiming to cut 1.7 billion pounds ($2.7 billion) in annual costs and raise standards after a series of scandals.
Germany's Commerzbank has restricted investments in agricultural products, but other banks have been slower to curb activity despite lobbying by groups such as the World Development Movement.
Deutsche Bank last month reversed a moratorium on trading in agricultural derivatives, saying there was no evidence that such activity boosted food prices.
Jenkins did not give any further details of changes within the bank's commodity business, but a presentation on the bank's website said the restructuring has largely been completed.
In November, Barclays quit open outcry trading at the London Metal Exchange, downgrading its membership at the world's biggest market for industrial metals to cut costs.
At the time, the bank said it remained "deeply committed to the base metals market" and a source close to the bank said the vast majority of its metals trading already flowed through the bank's own electronic trading platform, BARX.
Last May, Barclays lost its commodities trading chief Roger Jones to Swiss trader Mercuria, one of the biggest in a series of moves by commodities traders from banks to less-regulated trading operations.
Barclays said in its results statement on Tuesday that Fixed Income, Currency and Commodities revenue jumped 50 percent year-on-year in the fourth quarter and 17 percent last year, but like other banks it does not break out commodity turnover.
In the fourth quarter, commodities revenue at top U.S. banks tumbled by a third as tougher regulation curbed activity amid lackluster markets and sluggish demand for hedging, consultancy Tricumen said.
(Editing by William Hardy)