By Swati Pandey and Vidya Ranganathan
SYDNEY/SINGAPORE (Reuters) - Australia and New Zealand Banking Group (ANZ.AX) is considering expanding its physical commodity trading business as it aims to step into the gap left by the retreat of big Wall Street and European banks, a bank source with direct knowledge of the matter said.
Australia's No.3 lender is set to put a proposal to launch a physical commodities trading desk to its risk committee and board in July, the source told Reuters.
ANZ is looking to take advantage of its strong balance sheet and a lighter regulatory burden on Australian banks compared to rivals operating in the United States.
The plan to expand physical commodities trading beyond just gold and silver comes as major global banks are scaling back the business because of rising capital requirements, regulatory scrutiny and weak margins.
JPMorgan Chase & Co (JPM.N) and Morgan Stanley (MS.N) have sold off large parts of their physical trading businesses, while Barclays PLC (BARC.L) and Deutsche Bank AG (DBKGn.DE) are quitting the commodity markets altogether.
"With the exit of big U.S banks from the business of physical commodity trading, we see an opportunity to get into that business," the source, who did not want to be identified as the matter is not public yet, told Reuters.
Unlike ANZ's current gold and silver trading, the proposal is for the bank to operate in all aspects of the supply chain, from sourcing to warehousing and freight contracts. It is not clear which commodities it will trade.
A spokesman at ANZ declined to comment on the issue.
The proposal fits in with ANZ's "super regional" strategy as it seeks to position itself as a leading trade bank in Asia. ANZ is expanding its suite of services to cater to its biggest corporate clients and provide them with specialized services, sources within the bank said.
NO CURBS ON PROP TRADING
Its Australian rival Macquarie Group (MQG.AX), the country's largest investment bank, earned A$1.1 billion ($1.04 billion) in net income from physical commodities trading in the year to March 31. [ID:nL3N0NO3W8]
Unlike Wall Street banks, Australian lenders have no restrictions on proprietary trading. Banking regulator Australian Prudential Regulation Authority did not comment specifically on physical commodity trading by banks when asked by Reuters but reiterated its position that lenders must set aside more capital for high-risk activities.
"There is a potentially urgent appetite for that activity because there are no restrictions at this stage. It's a market opportunity," said a consultant who advises Australia's major banks on financial risk management.
ANZ posted a cash profit of A$3.52 billion for the half year-ended March, setting itself up for a sixth year of record profit. Profits in its 'global markets' division increased 14 percent due to strong demand for foreign exchange and commodity products in Asia. [ID:nL3N0NM7EB]
The bank's commodities arm largely provides risk management services through its eight locations globally. As at end-June 2013, it handled 15 percent of global physical bullion turnover and is the third-largest importer of gold into China.
Investors say a physical commodities play would be more about providing additional services for clients, rather than taking big bets on its book.
"If they enter this business, I don't see them doing what Macquarie does - trading to prop up its books," said a Sydney-based fund manager, requesting anonymity as he cannot talk publicly about a company's strategy.
ANZ, which wants to garner 25-30 percent of its profit from outside Australia by 2017 from about 16 percent now, is seeking to rev up its push into Asia.
Among other changes, it is splitting its global financial institutions team into two to put greater focus on the business while merging its natural resources group with mining, metals, energy and infrastructure to remove overlap, the sources said.
It also plans to form a new transportation business segment that will cater to airlines, shipping and logistics clients.
($1 = 1.0610 Australian Dollars)
(Additional reporting by Sharon Klyne in SYDNEY; Editing by Jane Wardell and Muralikumar Anantharaman)