Banks throw money at energy, recruit worldwide
LONDON (Reuters) - Investment banks are pouring money into their global energy operations, recruiting professionals worldwide as volatile oil markets and power and gas liberalization trigger more customer demand.
Credit Agricole unit Calyon (CAGR.PA: Quote, Profile, Research), Fortis (FOR.BR: Quote, Profile, Research) and ABN Amro (AAH.AS: Quote, Profile, Research) are among European banks that have been actively recruiting energy and commodity personnel.
Dresdner Kleinwort Wasserstein, the investment banking division of Dresdner Bank (ALVG.DE: Quote, Profile, Research), signaled its intent last year by hiring Martin Fraenkel, previously of Man Investments, as the global head of DrKW's commodities division.
"We see opportunities in energy," Fraenkel told Reuters. "We see opportunities for our bank, in particular as a German bank as the European energy market continues to liberalize."
For Calyon, the corporate and investment banking arm of Credit Agricole, the opportunities are global.
"Calyon is expanding all over the globe; the commodities market is growing very quickly," Etienne Amic, Calyon's global head of commodities, said last week.
"There's a wall of money coming into the commodities market; everyone wants to do commodities, and these are real customers
-- companies, asset managers, hedge funds," Amic said.
While some banks seek rapid growth, others are now gearing up to challenge the two Wall Street banks that have dominated energy markets for decades, Goldman Sachs (GS.N: Quote, Profile, Research) and Morgan Stanley (MWD.N: Quote, Profile, Research).
"I think some of the first tier banks will start feeling the pressure from second tier banks that have been expanding aggressively," said Wayne Harburn, head of commodity derivatives at ABN Amro.
Harburn cited Barclays Capital as a prime challenger to the Wall Street giants, while Boston Consulting Group (BCG) says UBS (UBSN.VX: Quote, Profile, Research), Merrill Lynch (MER.N: Quote, Profile, Research) and Credit Suisse (CSGN.VX: Quote, Profile, Research) "have strengthened their positions through selected investments."
BCG said in a recent survey revenues accruing to investment banks from commodities trading, including energy, jumped to an estimated $7.2 billion last year from $6 billion in 2004.
The report said Goldman Sachs and Morgan Stanley each earned more than $1.5 billion from trading energy and commodities contracts in 2005, but warned that competition would intensify.
"Competition is certain to increase; as a result, participants will need to fully leverage core banking capacities in order to protect and grow share," the U.S. consultancy said.
Some players, like Fortis Bank (FOR.AS: Quote, Profile, Research), are looking to enter physical markets, trading real cargoes, as a way of widening their customer base in energy markets.
The Benelux bank and insurance group intends to enter into physical energy markets this year with the aim of doubling its trading and marketing team in the lucrative sector to nearly 50 professionals by 2009.
"We've been convinced for some time that if you want to get to a certain amount of revenue (in energy) then you have to offer physical products to your clients," says Stany Schrans, head of energy and environmental markets at Fortis.
Dutch-based ABN Amro is also recruiting energy and commodities professionals across the globe. Several hires this year will take the bank's global team to 36 from virtually zero 18 months ago when it entered the market.
"This market is competitive, it's expansionary," commodity derivatives head Harburn told Reuters. "There are opportunities for banks to grow."
And Calyon is aiming by year-end to double its commodities trading team of 45 by adding a gas and power trading desk to its oil and metals derivatives operations.
The Wall Street heavyweights haven't stood still. Both Goldman Sachs and Morgan Stanley have been sharpening their profile on physical markets.
Goldman Sachs's private equity arm together with Kelso & Co. purchased Kansas City-based refiner Coffeyville in July, while a consortium led by Morgan Stanley Emerging Markets also launched a failed bid for South Korean refiner Inchon Oil.
Morgan Stanley hired several crude traders away from major oil companies last year who later surfaced in physical markets.
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