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Report: Scotiabank pulls back from metals financing

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Report: Scotiabank pulls back from metals financing

Canada's Bank of Nova Scotia, or Scotiabank, is pulling back from metals financing while still trying to sell up to half of its ScotiaMocatta metals business, Reuters reported June 6, citing sources familiar with the matter.

Industry sources placed the value of ScotiaMocatta's leases, credit lines and consignment lending of precious metals at about US$8 billion. Mocatta is the largest financier of the global precious metals supply chain, the report said.

In February, Scotiabank initiated a strategic review of ScotiaMocatta after it decided to retain the unit. A Reuters report in January said Goldman Sachs Group Inc. and Citigroup Inc. were undertaking due diligence proceedings for the metals trading arm, which was being shopped for up to US$1 billion.

The bank has yet to decide on the future of Mocatta's Asian arm or whether it would continue to clear and vault precious metals. However, there have been a number of high-profile exits by senior bankers. Mocatta's managing director in North America, Tim Dinneny, quit the bank in mid-May.

About six trading and sales staff members in London and New York have been given notice that they will be made redundant in October. Mocatta's head of Europe and its global head of base metals sales were also let go in May.

"In North America they'll keep more of the business because they are a North American bank. Europe is non-core. (Globally) they'll keep half," one source was cited by Reuters as saying.

A Reuters source said Scotiabank is still aiming to sell parts of the ScotiaMocatta business. "They were hoping a buyer would take everything, but that didn't happen. Now they are going to carve up some pockets of the business and try to sell those," the source said.

ScotiaMocatta significantly reduced its lending to the physical metals supply chain and will refocus its efforts to its major corporate clients with wider relationships with Scotiabank, said sources cited by the newswire.

In addition, existing stand-alone clients were given a grace period to make alternative arrangements, with the winding-down period expected to take place over 1.5 years.

Banks including Barclays PLC, Deutsche Bank AG and Commerzbank AG have scaled back operations or exited the market in recent years, resulting in a smaller cash pool available for the mining industry and leaving smaller clients with a shorter list of options and higher borrowing costs, the report said.