Newcomer of the year, Asia: Commonwealth Bank of Australia

Energy Risk Asia Awards 2019: CBA shows how regional banks are taking the reins as internationals scale back in commodities trading

Todd Dreyer, Commonwealth Bank of Australia

By taking a client-focused approach to the development of its energy risk management business, Commonwealth Bank of Australia (CBA) is one of the entities plugging the gap left by the departure of several major international banks from the commodities space. As an Australian regional bank, it has leveraged its knowledge of the Australian commodities space while also developing its US and European footprint with new hires. By combining its commodities markets and financing teams, and also investing in technology and people, CBA has greatly enhanced its offering to clients at home and abroad over the past 12 months.

CBA initiated the process of combining its markets business with its commodity trade finance offering in June 2018. This move, says Todd Dreyer, CBA’s Sydney-based executive director, energy and metals markets, enabled the bank to increase its suite of financing solutions and bespoke structuring options to provide both financing and risk management products across the value chain to its clients. The team can now offer reserve-based lending, project finance, trade finance, commodity-linked finance and commodity repurchase agreements, alongside risk management tools. This has enhanced the support CBA can give to clients and allows it to tailor its offering to specific assets, according to Dreyer.

“Now we have a great financing business that we can bring to the market, as well as our risk management offering, delivering products like prepays and structured repo transactions, which would typically need to involve other parts of the bank to do the financing,” he says.

Dreyer believes the departure of many international banks from the commodity trading space in recent years has opened up demand for this kind of offering from CBA in the Asia region, providing a robust pipeline of business for the bank. “We understand the commodity, we understand the risk underlying that commodity, and we are a AA-rated bank,” he says. “This is an exciting time for us as we can provide a single point of contact that can link everything together for the client.”

CBA’s client base consists of energy producers – comprising roughly 60% of its business – and consumers such as airlines, Australian utilities and industrials. The bank also works with Australian clients that have US or European operations to help them manage their risk in these markets. “Our main focus right now is to deliver the US market to our Australian client base, both in terms of liquidity and structures,” Dreyer says. “Further, Australia is a commodity-based economy, so that’s a strength in terms of what our Australian footprint can do for us in order to understand commodity risk and supply chains across the globe.”

As such, while its client base is skewed towards Australian clients at the moment, the desk is aiming to move closer to a 50/50 split between Australian corporates and US and European organisations, such as producers looking to sell into the Asian market, according to Dreyer. “That’s where we want to move,” he says. “However, we are not so concerned with the split, but rather with positioning ourselves to grow our business as the opportunity set in a geography slows down or speeds up.”

Part of that positioning effort has involved significant investment in people and technology over the last year. CBA has boosted headcount on its commodities desk in the past 12 months, doubling its US team from two to four people, as well as adding another London-based hire and two more people in Sydney to a total of five traders in Australia and Singapore, according to Dreyer. The bank also created a dedicated quant team for the energy franchise in August 2018, enabling the team to develop new models to price risk and quote clients live prices on benchmark indexes.

Dreyer says efforts to upgrade its technology platform have also boosted turnaround and overall transaction times – a development that was praised by CBA clients interviewed by Energy Risk. “We are in the midst of an upgrade from spreadsheet-based models to industrialise our systems,” Dreyer says of this process. “This will provide a language that allows risk to be handled more quickly, to run revaluation simulations more quickly and to generally be more nimble in the market.”

These recent developments have been made with the client in mind – and that will continue to be the focus for CBA, according to Dreyer. “Everyone has good systems, but what are your points of differentiation?” he asks. “How we price things and how we approach the market works for our clients, and that’s the most important thing for us,” he says.