ICBC Standard Bank PLC said on Monday it is buying a precious-metals vault from Barclays PLC’s, in the latest move by the Chinese bank to increase its role in the market’s infrastructure.
The move makes parent ICBC, the world’s biggest bank by assets, the first Chinese lender to own a vault in London and extends its influence in precious metals from pricing to storage. With China the largest consumer of many metals, the country’s banks have increasingly bid to own or help run the infrastructure in these markets.
The vault gives ICBC a high profile platform in the precious metals market. It also makes it easier for the bank to sells its services to western-based clients given that it now has a location to store metals that is closer to them.
With “London being the place where a lot of the bullion is traded, especially from an institutional perspective, it makes sense for them,” said Mark O’Byrne, director at Dublin-based brokers GoldCore. “Some people, particularly Western buyers, might be more inclined to have their gold stored in London than have their gold stored in China.”
The vault holds up to 2,000 metric tons in gold, silver, platinum and palladium at a secret location in London and can be used by investors, jewelers, miners and even countries to store their metal.
Vaults are particularly important to trading precious metals because they have fewer industrial uses than the likes of copper or lead and are held mainly as a store of value. The constant trading in and out of positions, coupled with the sheer value of large quantities of the metals, mean that it is best to hold them in a vault. That is particularly so for gold because of the importance of exchange-traded funds in the sector, most of which need to sit on large quantities of physical gold to back up the investment they sell and who are required by regulators to store it with banks.
For ICBC Standard Bank, owning a vault gives an extra reason for clients to use their services while also bringing in a steady revenue from the fees holding the metals bring.
“To [be able to] say that we are a bank with a storage facility in the London area, it allows you to maybe get some of this institutional money from ETFs and other products,” said Jeffrey Christian, managing partner at CPM Group.
There are seven providers of vault services to the London bullion market, including the Bank of England and HSBC PLC. No financial details were disclosed on the deal, which is expected to be completed in July.
“This enables us to better execute on our strategy to become one of the largest Chinese banks in the precious metals market.” Mark Buncombe, head of commodities at ICBC Standard Bank, said of Monday’s deal.
ICBC Standard Bank, which was formed after the Chinese bought a majority stake in the markets operation of Standard Bank PLC in 2015, has made a big push into precious metals markets this year.
In June, it will become the first new bank in over a decade to join the organization that administers the London precious metals clearing system, where members settle trades and provide credit to clients.
ICBC also recently became the 13th bank that submit prices to help set the London Bullion Market Association’s twice-daily gold price benchmark. The Bank of China and China Construction Bank already help set the benchmark.
In March, China Construction Bank became the first Chinese participant in setting the LBMA’s benchmark silver price.
These banks have expanded research and trading teams into London, marketing to clients across Europe.
Trading of metals is also ballooning at home in China. Chinese investors have become the dominant force in iron ore, while trading in futures for the steel rebar used in construction and copper have boomed in Shanghai.
London though, remains the major center for gold trading. Around 407 million ounces net of gold was settled between members of the London Bullion Metal Association in March, according to data from the association.
“If you want to be a dominate player in gold, then it would make sense for you to have some involvement [in London] ,” said Adrian Ash, head of research at BullionVault, an online bullion marketplace.
Barclays opened its vault in 2012 just as the price of gold was declining after a decade of steep gains.
In recent years Barclays, like many others, has been moving out of the precious metals market. The British bank announced in late January that it was exiting metal trading, following in the wake of several high-profile banks and trading houses, including Deutsche Bank AG and Switzerland-based Gunvor Group.
In 2014, Barclays moved much of its commodities exposure to a noncore unit, as part of a continuing effort to make the bank smaller and more focused. A slew of bank regulations since the financial crisis meant that the bank, along with others, increasingly found it difficult to make money from low-margin global commodities trading.