Several large banks and other lenders have pulled back from coal mining in recent years due to pressure from various environmentalists and concerns about huge losses from a distressed industry.
Deutsche Bank was the only institution that many coal miners count on for financial support and advice even in these difficult times. However, the German back retreats from the troubled coal segment, another indication of the growing risks for banks that supports industries contributing to climate change.
In the previous week, six senior members of the Deutsche Bank’s metals and mining investment banking group, which was in charge of managing deals in the coal industry, said they were decamping for another bank. Jefferies, which is a smaller New York investment bank that has a clever way of scooping up investment bankers who increasingly feel out of place at bigger global banks.
A representative from the bank refused to comment on the banker’s departure. According to industry analysts the move was partly linked to Deutsche Bank’s decision to pull back from working on certain coal projects.
Deutsche Bank has no immediate plans to replace the six bankers, who helped the bank win the largest market share of metals and mining revenue in America among other banks last year. The ranking climbed from sixth place in 2011, when most of them joined Deutsche from the Swiss banking rival UBS.
A well-known coal banker at Deutsche Bank will be the global head of metals and mining investment banking at Jefferies.
“The large banks are under significant pressure from environmental groups to limit their activity in fossil fuels and mining across the board,” a trading consultant said. “This move might reflect an investment banking team that was no longer that important to a large bank and that will now be able to practice their niche under somewhat less scrutiny.”
Why Banks Leave the Coal Industry
Another reason why banks are leaving the coal mining sector is due to economic reasons. Just a couple of years ago, coal was soaring as mining companies sought to satisfy a likely insatiable demand from China.
In 2011, the leading investment banks in the sector gathered over $1.6 billion in investment banking revenue from metals and mining agreements internationally, including coal deals. Last year, that figure had dropped to just $820 million.
The American coal industry is currently suffering a series of bankruptcies. Power utilities are increasingly shifting to cheap natural gas and renewable energy sources such as solar and turn to replace coal. China’s demand for coal also weakened as its economy slows and the Chinese government attempts to move to cleaner energy sources.
As the coal sector endures what several analysts and market players expect to be a lasting decline, environmental groups have faulted Deutsche bank for helping maintain some life in the industry.
“Deutsche Bank supports a well-balanced overall energy mix that takes account of economic conditions as well as environmental and health and safety considerations,” a Deutsche Bank stated.