Barclays Hit With "Immense" Copper Trading Loss; 50 Sigma Move In Cancelled Aluminum Warrants

Tyler Durden's picture

Just as Blythe Masters' (yes, that one) team suffered huge trading losses in the middle of 2010 following the abysmal RBS Sempra purchase, showing that when traders of scale lose, they lose big, so today another big commodities trader, Barclays, is reported to have gotten crushed on copper and other base metals bets gone wrong. Dow Jones says that Barclays is set to reshuffle its base metals trading team following a series of significant financial losses made by the desk this year. "The base metals trading team is run by Iain MacRae, who is currently still working at Barcap. The company has been unravelling a number of its copper positions recently, traders and brokers said, along with positions in other base metals it trades. The majority of the losses were in forward copper spreads, people familiar with the matter said. Although these positions were in-the-money a year ago, the market has since gone in the other direction, forcing Barclays to close the positions out at significant loss, these people added....The investment banking division of Barclays Bank, Barclays Capital has been a category one ring dealing member of the London Metal Exchange since May 1997 and is traditionally a high volume participant in base metals futures and options trading. It also owns a 2.3% stake in the LME." As to who the most likely beneficiary of this collapse is Goldman, which in tried and true fashion told its clients to be buying copper throughout the carnage, only to close its copper position at a 20% loss a few days ago. But not before indicating that even more bloodbathing is in store for the future, having concurrently reopened future bullish positions in copper.

As for Barclays, the half a billion loss will likely not impact EPS - after all it will be represented as a "one-time item."

People familiar with the situation said it's been an extremely tough year for the base metals desk, with the losses mounting steadily over a period of months. While few market participants could have predicted the weakness in commodity prices as a result of the deterioration in the health of the euro zone this year, the scale of Barclays' losses in base metals trading is immense, people familiar with the situation said. No figure has been put on the size of the losses--and Barclays declined to comment--but a figure of $500 million is being bandied around by LME metals market participants.

The bank's losses also come at a time when Barclays has been beefing up its activities in the physical trading arena. The bank has for a long time been a large player in financing metal, but has been boosting its smaller operations related to the physical movement of metal, particularly in Asia. The growth in its physical business comes as Barclays teams up in a joint venture to warehouse metals with steel trader Metalloyd and an individual investor, Alex Gunn. The firm, Erus Metals Ltd., was recently approved as a LME warehouse.

In other news, it is unclear if it is Barclays wreaking LME havoc which, as Sean Corrigan points out, just saw a 50 sigma move in cancelled Aluminum warrants in the past 2 days. Whatever it is, it ain't normal.

h/t London dude trader