Mercuria bets on structured finance, Goldman alumni to fuel growth

(Refiles to clarify some banks have scaled down, not exited, commodity trading; clarifies Mercuria position regarding derivatives)

* Looks to have mixture of physical, structured finance

* David Gallagher, head of structuring, latest Goldman hire

* Potential discussions about bigger stake sale to ChemChina

By Dmitry Zhdannikov

LAUSANNE, Switzerland, April 14 (Reuters) - Trading house Mercuria is expanding into structured finance, looking beyond trading physical commodities and derivatives for growth with recent hires from Goldman Sachs (NYSE: GS-PB - news) to help in its mission.

"We have built a global platform, now we are looking to build a second floor on top of that platform," Mercuria Chief Executive and co-founder Marco Dunand told Reuters on the sidelines of the FT Commodities Summit.

"Some banks are exiting the structured finance space, some banks do not want to touch physical commodities - so we see great opportunities. We will be looking to go beyond the molecule and have a mixture of physical and structured finance."

While top five commodities houses - Vitol, Glencore (Amsterdam: GX8.AS - news) , Trafigura, Mercuria and Gunvor - have traditionally focused on trading physical commodities and derivatives, structured finance such as non-classic trade finance involving multiple customers, unusual collateral and hedging has been dominated by banks.

But tighter U.S (Other OTC: UBGXF - news) . and European regulations have made commodities trading difficult for banks.

As a result many lenders - such as Barclays (LSE: BARC.L - news) , JP Morgan and Deutsche Bank (LSE: 0H7D.L - news) - have exited or significantly scaled back commodities in the past three years although Goldman has kept the most significant commodities division among banks.

Dunand and fellow Goldman veteran Daniel Jaeggi co-founded Mercuria in 2004 and grew the trading house rapidly with the purchase of parts of JP Morgan's commodities business and a stake sale to strategic partner ChemChina.

Mercuria also employed a small army of high profile specialists from Goldman, including latest hire David Gallagher as the global head of structuring, previously managing director for commodities structuring at Goldman.

Magid Shenouda, Goldman's previous co-head of commodities trading, is Mercuria's global head of trading. Head of strategies Valentina Riva, head of compliance Victoria Attwood Scott, head of risk Ellis Kitchener and head of operations Alistair Cross are also all ex-Goldman.

The hiring and acquisitions from the banking space could turn Mercuria into a predominantly derivative player rather than a physical barrel mover and Dunand said expansion into structured finance would be consistent with the trend.

"My guess it will be skewed towards paper rather than physical," he said. Mercuria will also most likely stay light on the physical asset ownership front.

"In peoples' minds - trading is a risky business and assets are safer. But most people in trading never had a down year while assets write-offs happen all the time. Market risks are manageable while volatility of earnings comes from assets," he said.

Mercuria made provisions of around $400 million in 2014 and 2015 in case it needs to write down the value of assets from oil to coal amid a commodities price decline. Provisions were made as the firm was also closing a deal to sell 13 percent in itself to ChemChina.

"We work with ChemChina and potentially there could be discussions about a bigger stake sale," Dunand said. "But there are other contenders too and it is early days... We don't need more capital, we have a lot of liquidity but we are still being attracted by strategic synergies with producers and consumers." (Reporting by Dmitry Zhdannikov; editing by Susan Thomas)