French bank Societe Generale is exiting its North American physical gas and power trading business, a bank spokesman said Friday. Sources noted it had stopped all new business and began unwinding positions this week.
A source close to the matter said the physical gas and power desks employs about 150 people with the bulk located in Stamford, Connecticut.
The trading unit's assets aside from its original book of business, was bought about 11 months ago by SocGen from RBS Sempra for an undisclosed amount. Separately, in October 2010 JP Morgan had purchased RBS Sempra's trading books for $220 million.
The exit is in line with SocGen's larger plan of "adapt[ing] its portfolio of activities internationally that are adversely affected by regulation or do not meet competitive positioning, synergies potential or profitability criteria," bank spokesman Jim Galvin said in an email statement.
A small team will be retained in order to unwind the business, while a handful will be transferred to other commodities desks, the source said, adding the bank's North American gas and power trading operations were only in the "ramp-up stage."
KEEPING METALS, ENERGY DERIVATIVES, AG TRADING
SocGen will retain its energy derivatives desk as well as its metals, agricultural and commodities indices operations, Galvin said.
Meanwhile, French bank BNP Paribas is shuttering its Houston office, spokeswoman Cesaltine Gregorio said Friday.
"We are moving the platform to New York because it is more cost effective," Gregorio said. "The new global regulatory environment, such as the Dodd-Frank regulation in the US, has made it very difficult to compete. We have had to make some tough choices."
Sources familiar with the situation said BNPP's Houston office employs some 150 people, including the head of energy operations and managing director of energy trading.
Fewer than 20 employees will be relocated to BNP's New York office, the sources said. Gregorio said, however, "nothing has been formalized in terms of the number of people who will be moved."
BNP Paribas was the 26th largest gas marketer in North America in the third quarter of this year, according to Platts rankings, selling some 1.4 Bcf/day. On the electricity side, the bank came in 33rd. SocGen did not place in Platts top 20 gas or electricity marketer rankings.
Analysts attributed the pullback on the part of Europeans banks on a combination of the eurozone debt crisis and the lack of volatility in US gas markets.
The credit crunch in Europe has resulted in stricter capital requirements, ultimately limiting European banks' access to cash, analysts said. Over the last two weeks, both Moody's and Fitch have cut the ratings of French banks, SocGen, BNP Paribas and Credit Agricole on concerns about their European debt holdings.
Added to that, analysts said is the lack of volatility in US natural gas markets.
"The loss of profitability is not because of the depressed US gas prices, but because players have to dig in deep to find minor spreads these days," said Pax Saunders of Gelber & Associates. "Instead of nickels, you're making pennies."
"If you're a European bank looking to shave operations anywhere, you'll look for where you find long term, lower profitability," said Gelber's Norm Spratling. "And right now, it's probably gas."
