LONDON, Oct 3 (Reuters) - Barclays is finding newways to boost its commodities business, offering tradingservices as part of a mix of capital solutions and merger advicein an approach showing banks can succeed in keeping tradingdesks despite tighter regulations.
The British lender is a member of a small club of largecommodities players in banking together with Goldman Sachs, Morgan Stanley and JPMorgan, all of whichhave expanded oil and metals trading aggressively over the pastdecade but had to scale back in the last few years.
Most of the downsizing happened on the so-called proprietaryside, where banks traded with their own money, as regulatorssaid those actions might have added to market froth.
The emphasis switched to trading commodities for clients, aless profitable business but ultimately one that is raisingfewer questions with regulators, which are pushing banks toretreat to their core operation of lending.
Offering clients commodity trading as part of a much biggercocktail of services is one innovative move, as a recent deal byBarclays to supply oil to a refinery shows.
U.S. energy firm Par Petroleum Corp last weekcompleted the purchase of U.S. refiner Tesoro Corp's 94,000-barrels-per-day refinery in Hawaii for over $300 millionin stocks and cash.
Under the deal, Barclays will hold the oil and petroleumproduct inventories at the plant, which amount to 3.2 millionbarrels, as well as supplying it with four to six cargoes ofcrude a month.
Independent refiners have struggled for years under poorrefining margins, and such deals allow them to alleviate theburden on working capital and reduce price-volatility risks.
Several of America's largest enterprises including Boeing Co warned the Federal Reserve on Tuesday that restrictingWall Street's trading in physical commodity markets could harmtheir business.
Barclays' Hawaiian move is somewhat similar to last year'sdeal with India's Essar in which the bank became theoil supplier and holder of 5 million barrels of product storedat Stanlow, the second-largest UK refinery, for three years.
But the latest arrangement is different as it came embeddedwith an acquisition.
"The Essar deal was a working-capital solution ... theHawaiian deal came as a combination of a structured capitalsolution and an M&A transaction," said John Eleoterio, globalhead of commodity-linked finance at Barclays.
Tesoro shut the refinery in April after trying to find abuyer for more than a year. Par emerged as the purchaser in Juneand began working on the plant's restart.
"We have been approached by Par to assist in developing aworking-capital solution for the acquisition ... The owner wasconsidering shutting down the refinery and turning it into aterminal. But ultimately Par was able to complete theacquisition and keep the refinery up and running," he said.
The Par deal will last three years and can be extended foranother two years. The plant is expected to continue runningmainly on Middle Eastern, Russian, South American and NorthAfrican crudes but could add North American grades.
Barclays (BARC)