As part of its Strategy 2015+ to focus on core and profitable operations as well as strengthen balance sheet, Deutsche Bank AG (DB) announced plans to cut down its commodity business across the globe. This will lead to closure of dedicated trading desks for energy, agriculture, base metals and dry bulk in New York, London, Houston and Hong Kong.

The decision will not adversely impact Deutsche Bank’s financial performance. The company has formed a Special Commodities Group to wrap up these operations over the next two years.

However, Deutsche Bank will continue to hold on to its trading arms in financial derivatives and precious metals, which will be integrated with Fixed Income and Currencies unit. Notably, the company’s decision will not affect the world’s biggest broad commodity exchange traded fund, PowerShares DB Commodity Index Tracking Fund, which is now integrated with Asset Management operation.

Nevertheless, the move will lead to retrenchment of about 200 employees.

Deutsche Bank is not the only major global bank to exit the commodity business.  The company follows  the footsteps of Wall Street giants such as Morgan Stanley (MS), JPMorgan Chase & Co. (JPM) and The Goldman Sachs Group, Inc. (GS). While JPMorgan announced its decision to exit the commodity business in Jul 2013, the other two banks have been trying to sell their commodity operations for quite some time.

Once a lucrative sector, the physical commodity business is fast losing its shine. Intensification of regulatory and political scrutiny, higher capital costs and decline in profitability are the primary reasons making the business unfavorable for banks across the world.

However, Deutsche Bank’s decision to move away from commodity operations is not entirely a result of these reasons. The company has been revaluating its operations and consequently decided to exit its commodity business to lower costs amid the sluggish operating environment.

Currently, Deutsche Bank carries a Zacks Rank #4 (Sell).

DEUTSCHE BK AG (DB): Free Stock Analysis Report

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