Why is Citigroup Building Its Commodities Team as Other Big Banks Pull Out?


Citigroup Inc. (NYSE:C) is building up its commodities teams while “big players” such as Morgan Stanley (NYSE:MS) and Deutsche Bank (NYSE:DT) reduce their trading interest because of poor returns.

New York-based Citigroup, which had to retreat during the financial crisis along with a number of other major financial institutions, is now actively building up its commodities teams in anticipation of improved profits as the global economy recovers.

During the past few years, higher costs, tighter regulations, and inflated dealer salaries have had an impact in overcrowding the market, contributing to low price volatility and reducing the profits in trading commodities such as oil and metals.

According to Reuters, these factors have led to a drop in banks’ annual revenues from commodities, from a peak of $14 billion in 2007-2009, to just $7 billion. Although many dealers have moved from the banks to higher-paid trading house positions, salaries have dropped and cost pressures are easing, prompting banks like Citigroup to focus more on strengthening their services to commodities clients.