Commodity Volatility Spurs Regional US Banks to Offer Hedging
For years, regional US banks lent money to commodities clients, only to watch them take their lucrative hedging activity to Wall Street. Now the regionals want to grab more of a booming business. At least three mid-sized regional banks — Texas Capital Bancshares Inc., Bank OZK and Flagstar Bank NA — have either added commodities hedging desks, launched new products or are planning expansions this year.
The trend began with market shocks unleashed by the global pandemic and the Ukraine war, but supply turmoil and price swings triggered by this year’s Middle East conflict have ramped up demand for risk-management services, the market for which has typically been dominated by the national banks.
“Given the recent volatility in the marketplace, we’re keen to get something in place as soon as possible,” Sean Ryker, head of capital markets at Flagstar, said in an interview. The Bloomberg Spot Index, which tracks 25 energy and commodity products, has this year seen a third major spike of volatility since 2000 as the Iran war sent crude soaring above $100 a barrel, while fuel, power and metals prices also saw major swings.
Texas Capital Bancshares opened its commodity hedging desk in April, while Bank OZK’s executed its first trade in early September. Flagstar Bank NA aims to launch an offering by year-end. Other regional banks are also building out their offerings, industry sources said. The regionals have traditionally lent money to commodity firms, but they lacked the infrastructure or staff to run a derivatives desk. By offering hedging, the regionals can become more of a full-service provider, while boosting their own revenues.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing