Credit Suisse Trade Finance Pullback Said To Hit Metal Merchant Hub
Date: Apr 04, 2019
Metals traders in Switzerland are feeling the brunt of a pullback from trade financing activities by banker Credit Suisse, after a 2018 deal turned sour and left the bank less keen to be exposed to the high-risk, low-margin commodities business.The Zurich-based bank is a principal supplier of financing to Switzerland’s commodities trading community, from crude oil to copper concentrates to aluminium billets.
But since it entered a loss-making deal to finance energy products last year, Credit Suisse has scaled back its exposure to the commodities industry. This has left several metal merchants facing a shortage of credit, according to sources with direct knowledge but who asked to remain anonymous.
The bank said that its Corporate & Institutional Clients division recorded a provision for credit losses in the fourth quarter of 2018 of 30 million Swiss francs ($30.03 million), compared with 18 million Swiss francs in the third quarter.
“[The fourth quarter] reflected higher new provisions mainly related to one individual case,” the company said in its 2018 results statement. It declined to comment on the matter for this story at the time of publication.
The fallout from this has led to job dismissals at the bank, as well as stricter parameters for lending to trading clients, many of which are in locations that are a 20-minute train-ride away, in the lakeside towns of Zug and neighboring Baar.
“Credit Suisse told us in a meeting that it had a big loss on an undercapitalized trader,” one Zug trader said. “That’s one of the reasons its management has become so much stricter.”
Switzerland-based trading companies handle 60% of the world’s metals trade, as well as 35% in oil and 60% in grains, according to the Swiss Trading & Shipping Association.
Credit lines and deal financing are the lifeblood of commodity trading firms, which require substantial borrowing to make slim margins when buying and selling goods that are mostly hedged for zero exchange price exposure.
These lines are especially pertinent to those which trade in concentrates, where bulk shipments of 10,000 tonnes are the standard unit of trade.
