BNP Paribas closes weather derivatives unit

BNP Paribas has withdrawn from the weather derivatives market in a move likely to prompt closer scrutiny of weather-trading unit performance at other banks.

“Weather derivatives trading was not providing the return on capital that was initially expected,” said Denis Autier, London-based head of BNP Paribas’ global risk solutions division.The French bank decided to close its weather derivatives operation at the end of 2001, at which time it began to wind-down trading and marketing activities, said Autier: “Weather trading is a complex business and we review our involvement across all products regularly. We decided the resources, both in terms of capital and staff, could be better used elsewhere in the business."

BNP Paribas has redeployed staff - including four full-time weather employees - to other business areas, including interest rates swaps and options trading. The weather unit’s closure has not resulted in any redundancies, the bank claimed.

“Weather derivatives are interesting products. However, it’s a relatively time-consuming business for what on average are small transactions,” said Autier. BNP Paribas was only a medium-sized player in weather derivatives, but its exit is unlikely to help a market that is struggling to find greater liquidity.