Commodities revenue at the 10 largest banks slumped 24 percent last year, the first drop since at least 2008, according to analytics company Coalition.
The total fell to $6 billion from $8 billion in 2011, London-based Coalition said in a report today. The lenders’ investment-banking revenue rose 10 percent to $159 billion, the first gain in three years, it estimated.
The Standard & Poor’s GSCI Spot Index of raw materials rose 0.3 percent last year, the smallest annual change since 1985 and its worst performance in four years. The gauge’s 100-day historic volatility last year reached the lowest level since at least 2002, when Bloomberg data started.
“Low volatility and reduced client activity led to a 24 percent drop in revenues,” Coalition said. “Performance was also subdued by ongoing concerns about increased regulation and capital sensitivity, pushing banks to re-evaluate their commodities strategies.”
Banks including Goldman Sachs Group Inc. (GS:US) and Morgan Stanley also face higher capital requirements and tightening regulation that restrict commodities trading. The Volcker rule ban on proprietary trading and rules designed to increase transparency in derivatives markets are among regulations mandated by the Dodd-Frank Act awaiting completion by U.S. authorities.
In addition to Goldman Sachs and Morgan Stanley, the Coalition Index of 10 leading investment banks includes Bank of America Corp., Barclays Plc, Citigroup Inc. (C:US), Credit Suisse Group AG, Deutsche Bank AG, JPMorgan Chase & Co., Royal Bank of Scotland Group Plc and UBS AG. Spokespeople for all 10 companies declined to comment on the report’s findings.
Barclays this week shut its speculative agriculture trading and said its commodities unit will focus on “core banking, financing and risk management.” Its commodities trading staff shrank by a third last year and risk exposure to raw materials was cut by half, according to the bank.
Deutsche Bank, Germany’s biggest lender, has cut power and natural-gas traders in the U.S. and Europe. UBS, the Swiss leader, is ceasing to trade oil, industrial metals and agricultural products.
Commodities accounted for 6.5 percent of the $92 billion in revenue generated by the 10 banks last year from their fixed income, currency and commodity units, known as FICC in the industry. FICC revenues rose 21 percent in 2012, Coalition said. The banks don’t break out commodities revenue from the total.
Goldman Sachs said Jan. 16 its net revenue from commodities was “significantly lower” in the fourth quarter. Morgan Stanley said two days later its raw-materials revenues were “de minimus.”
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