renjith krishnan

Deutsche Bank expects further growth in its commodities business, including oil, its global head of the asset class told Reuters after cementing the bank among the biggest players in the last five years.

David Silbert, a US gas trader in the 1990s, who joined Deutsche in 2007 from Wall Street giant Merrill Lynch , said he saw tight risk control and diversified portfolios in all commodities as crucial elements of strong performance.

“We are very disciplined around position management. In the first quarter, we like most firms, did very well,” the Deutsche Global Head of Commodities said from his office in the heart of the City of London's financial district.

“I understand many didn't share our success in Q2, however. The market gave us plenty of opportunity to take profit on Q1 risk and initiate new business from many different streams,” Silbert said.

Deutsche has said it had its best ever second quarter in commodities trading in April-June 2011, helping offset an otherwise mixed performance in its fixed-income, credit and commodities division (FICC).

FICC posted revenues of 2.3 billion euros ($3.3 billion), up 8 percent from last year but down 37 percent quarter-on-quarter.

Deutsche's results came in sharp contrast to rivals including commodities trading heavyweights Goldman Sachs , Barclays and Morgan Stanley , which reported relatively weak performances in commodities divisions in the second quarter

The second quarter was particularly volatile, as a more than $10 per barrel dive in oil prices on May 5 caught most players unprepared. Neither were many ready for an oil price plunge when Western nations released emergency stocks in June.

What's more, corn prices tumbled 23 percent in the second half of June, while silver crashed by 30 percent after briefly touching a record high in early May.

“Our model is not dependent on huge volatility or having huge directional moves,” said Silbert, who added that the bank had made profit in commodities trading even on May 5 during the steep crash.

RISK TAKING

Silbert said Deutsche has considerably grown in size since he joined from Merrill and by trading revenues the bank was now among the top three globally.

Industry analysts and market participants estimate Goldman and Morgan hold the top spots by commodities trading revenues, followed by Deutsche, J.P. Morgan and Barclays.

Silbert said one of the reasons behind the success was his team of experienced traders.

“It helps having leaders with long histories in the markets in which they operate, all of whom are veterans of volatility caused by extreme events. Five to 10 ten years does not make a veteran.”

Silbert said efforts by governments to impose greater regulatory oversight on the commodities trading business would lead to greater transparency but was unlikely to have a very large impact on the dynamics of trading.

“Risk taking in commodities may fall, but not because of regulations but because many have not deployed risk successfully as of late.” - Reuters