BNP Halts New Commodity Trade Finance Deals as It Reviews Unit

(Bloomberg) — BNP Paribas SA has suspended new commodity trade finance deals while it reviews its involvement in the business in Europe, Middle East and Africa, according to people familiar with the matter.

The French bank, one of the largest lenders to global commodity traders, has recently told clients that no new deals will be concluded unless there’s a contractual obligation, said the people, who asked not to be identified because the information isn’t public. BNP is currently reviewing options for the future of its EMEA commodity trade finance business, the people said.

The move comes after the bank took a hit from commodity trade houses facing financial stress from Dubai to the U.S., the people said. BNP’s commodity trade finance team suffered heavy losses from the bank’s exposure to companies including crop trader Phoenix Group, energy firm GP Global Group as well as coffee dealer Coex Coffee International Inc., the people said.

Alexandra Umpleby, a spokeswoman for BNP Paribas, declined to comment.

BNP is considering the future of its Specialized Trade Solutions unit, known as STS, which handles commodities trade finance deals in energy, agriculture and metals mostly from Geneva, the people said. Options include shutting the business or merging it with the bank’s broader transactions services division.

BNP Paribas, through the Geneva office of what was then Paribas, pioneered the use of letters of credit to finance oil trading in the 1970s, working with Marc Rich among others. As the business of financing commodity traders grew, the bank was for many years the leading lender to the industry, accounting for as much as half of some trading houses’ bank lines. In recent years, it has been a diminished presence, but trading executives estimate that it still ranks among the top 10 providers of financing to the industry.

The bank has been shrinking its commodity trade finance business since 2014, when it was fined $8.9 billion for violating U.S. sanctions. No matter what option it pursues now, it’s planning to substantially retrench from the business, the people said.

BNP’s move follows a pullback by Societe General SA. SocGen is closing its trade commodity finance unit in Singapore following the collapse of Hin Leong Trading (Pte) Ltd. The bank will handle large Asian commodities trading clients from Hong Kong, according to people familiar with the matter, and cut ties with smaller firms.

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