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Citigroup Acquires Deutsche Bank's U.S. Power Trading Books

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In tune with its efforts to boost the energy trading business, Citigroup Inc. (C - Free Report) has taken over Deutsche Bank AG’s (DB - Free Report) power trading books, according to a Reuters report. These power trading books cover the ERCOT region in Texas and the East and Midcontinent.

Citigroup’s commodities trading operations primarily focuses on power and natural gas. Following the financial meltdown in 2008, the company streamlined its exposure in the energy, metals and agricultural markets. Further in May, Reuters reported that the bank will commence trading physical Canadian crude oil and strategizes to expand its commodities trade finance business.

In the wake of tighter regulations when several Wall Street biggies including Bank of America Corporation (BAC - Free Report) and Morgan Stanley pulled back their interests in the energy commodity trading sector, Citigroup is moving in the opposite direction.

It seems Citigroup’s latest move is in line with its strategy to grow its profitable ventures while divesting non-core assets. Notably, during first-quarter 2014, Citigroup’s revenue from the commodities operations increased twofold on a year-over-year basis. Continuing with the offloading of the legacy problem asset portfolio, Citi Holdings’ results were close to breakeven and management expects it to reach the breakeven point by 2015.

On Deutsche Bank’s part, the move came as part of the process of winding down its energy trading business owing to regulatory pressure and lower profits. Notably, in Dec 2013, the German bank announced that it will close its trading operations in energy, agriculture, base metals, coal and iron ore, while continuing with precious metals and a few financial derivatives traders.

Apart from Deutsche Bank, another European counterpart Barclays PLC (BCS - Free Report) initiated a similar move as it closed its power trading desks in London and New York in Feb 2014.

Bottom Line

As Citigroup is encountering issues from various fronts including the ongoing investigations related to the Mexican fraud and the Federal Reserve’s rejection of the company’s 2014 capital plan, the latest move could support its financials to some extent.

Citigroup currently carries a Zacks Rank #3 (Hold).

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