BofA-Merrill upbeat on Asian commodities, to expand
NEW DELHI, Feb 1 (Reuters) - Bank of America-Merrill Lynch is expanding its Asia commodities team as part of a global buildup, even though derivatives have come under fire from some Asian investors who alleged they suffered losses because they did not understand the complex tools offered by banks.
"Both the bank and the commodity positions are growing in Asia. We see Asia as a key area," Diego Parrilla, managing director and head of commodities for Asia-Pacific at the U.S. bank, told Reuters by telephone.
In September, the bank said it added five senior staff to its Asia Pacific Commodities team, hiring executives from ABN AMRO, Goldman Sachs and Deutsche Bank, and bank officials say they have been expanding the team.
Singapore-based Parrilla said there were big opportunities in Asia-Pacific such as China, India, Australia and Japan, which were the core markets in the region.
Its expansion in Asia was part of its global plan to raise its headcount in the commodities business by a quarter in three years, Parrilla said.
"We have a large and growing footprint in Asia. In commodities, historically our core sales and trading operation has been in North America and Europe," he said.
The bank sees significant growth in both the physical and financial markets in crude oil, refinery products, electricity, coal and liquefied natural gas, as well as industrial and precious metals.
"For corporate clients, consumer finance clients or producers who want to hedge their exposure on a standalone basis or alongside financing, there is a very large range of applications relating to commodity risk management," he said.
Foreign banks have gained from growing opportunities in Asia but they have also faced criticism from some Indian, Chinese and other clients, who alleged they suffered losses because they did not understand the complex derivatives offered by banks.
Several Indian firms have taken their banks to court over foreign exchange derivatives trades, which have gone sour.
"Hedging has had some bad connotations in the past. Some people associate it with more speculative activities, but hedging is a very powerful tool that can help companies focus on their own underlying business and manage the risk they may want to take," he said.
"Obviously there are different levels and different products that can be used. So it's very important that all this is done within the right regulatory framework," he said.
Parrilla said he favoured simple derivatives, but the clients needed to understand how it worked.
If you are a consumer buying call options, or if you are a producer buying put options, you know your worst case scenario, he said.
"It's very much like buying home insurance for fire. You know what the risk is. You are hoping that the house does not catch fire. If that happens, you lose the premium but then you are prepared to lose the premium." (Editing by Ranjit Gangadharan)
REUTERS
