Commodity Trading Firms Facing Scrutiny After Noble Accounting Flap

Global commodities trading firms are facing increased accounting and operational scrutiny because of a public dispute with analysts relating to accounting standards at Noble Group. The CFOs of several major international commodity trading firms that compete with Noble admitted to this during a panel event at the FT Commodities Global Summit on Wednesday.

Given the more than two-year long, bruising public battle with three analyst firms, which were critical of Noble’s overly generous accounting for contracts, Noble has stated it will be more transparent in the future.

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Noble has consistently denied any wrongdoing, but the firm has promised to offer more detail in its disclosures to the market.

Fallout from Noble spat impacting other firms

Several of the chief finance officers at well-known commodity traders such as Trafigura Beheer, Mercuria Energy Group, Gunvor Group and Vitol Group said that today they face more questions from banks, shareholders and regulators regarding the operations of their businesses.

“We’re expecting it and we’re starting to see a bit more surveillance in that area — which is probably a good thing — across all the stakeholders,” noted Jeffrey Dellapina, chief finance officer at Vitol.

All of the panelists agreed that banks have been asking trading firms more questions because of the Noble situation. Of note, banks are in effect risking their capital as they provide short-term loans that commodity traders use to run their businesses.

“At the end of the day, we are effectively leasing their balance sheet so they wish to hold us to their standards, and that’s a normal evolution,” said Guillaume Vermesch, chief financial officer at Mercuria.

The CFO at Gunvor, Jacques Erni, commented that the current situation offers firms “an opportunity” to more fully explain their practices to their financial partners.

“Yes, questions are coming, but I think it’s an opportunity rather than something else,” Erni pointed out..

“We’ve gone through a journey to improve our operational transparency,” said Christophe Salmon, Trafigura’s CFO for Europe, the Middle East and Africa, who also highlighted that Trafigura has already updated its financial disclosure policy to fight the perception that trading firms are secretive or underhanded.