BNP Paribas to shut down commodity trade financing operations in Switzerland

September 23, 2020.

is discontinuing its commodity trade financing activities in Switzerland, a move that could affect 120 Geneva-based employees, the bank’s Swiss group said Wednesday.

Under Swiss law, employers with more than 250 employees that plan large job cuts must hold negotiations with employees to prepare a social plan that mitigates the effects of the layoffs. BNP Paribas said that it has begun allowing employees to make suggestions about how to proceed with the plan.

The bank has a 128-year history in Switzerland, which it considers a strategic market in its European network. BNP said that its new strategy for the country will be based on corporate and institutional banking, with a focus on large and mid-capital Swiss companies, multinational corporations and financial institutions, and on wealth management.

BNP Paribas had paused new commodity finance trade transactions while it reviewed its business in Europe, as well as in the Middle East and Africa, Bloomberg reported last month. The bank had been scaling back its commodity trade finance business after it was fined $8.9 billion for violating U.S. sanctions in 2014, according to Bloomberg.

Other European banks have either been abandoning their involvement in commodity trade finance, or considering getting out of the business. Amsterdam-based ABN AMRO shut down its commodity finance activities in August as part of a downsizing of its corporate and investment banking operations that also involved exiting corporate banking outside of Europe and cutting 800 jobs. Netherlands-based Rabobank Group is also reviewing the business, Bloomberg has reported.

Commodity trade finance revenues for banks dropped 29% year to year in the first half of 2020, according to Coalition, a research company owned by S&P Global. 

BNP Paribas, ABN AMRO and Rabobank have all been among the most active commodity trading financiers globally, along with the Netherlands’ Groep and French banks Société Générale and Crédit Agricole, according to S&P Global. The S&P Global report attributes the retreat in part to low volumes and high loan losses during the COVID-19 pandemic. 

But even before the pandemic, profit margins had narrowed because of low interest rates and growing compliance costs, leading to “a perfect storm in the making,” Jean-François Lambert, founding partner of commodity trade finance consultancy Lambert Commodities, told S&P Global Intelligence. “Banks are reviewing their activities, and commodity trade finance doesn't shine in that review.”

The April collapse of Singapore-based Hin Leong Trading has also affected lenders. Banks including HSBC, Standard Chartered, Deutsche Bank and Bank have a combined exposure of at least $3 billion to the oil trader, S&P Global Intelligence said, citing a Bloomberg report.

--Additional reporting by Minyoung Park