Bloomberg News

Commodity Income at Top 10 Banks Seen Climbing 21% in First Half

August 28, 2014

Commodities revenue at the 10 largest investment banks increased to the highest level in two years in the first half because of the performance of power and gas, according to Coalition Ltd.

Raw materials revenue at Goldman Sachs Group Inc., Morgan Stanley (MS:US) and a further eight companies expanded 21 percent to $3.3 billion from a year earlier, the analytics company said in a report today. It was the only asset class in the fixed income, currencies and commodities division to show an increase, according to data from the London-based company.

Income climbed as a cold winter boosted trading in U.S. power and gas and investors increased interest in commodities, Coalition said. Sales grew even as companies including JPMorgan Chase & Co., Barclays Plc and Credit Suisse Group AG shrink or exit trading of energy, industrial metals and agriculture after regulators tightened rules and required more capital.

“Despite a sequential decline in the second quarter, outperformance was driven by strong revenues in U.S. power and gas on the back of the cold winter, combined with a general improvement in investor appetite,” Coalition said.

Natural gas prices advanced in New York for three straight quarters through June. The 30-day historical volatility of the futures contract climbed in March to the highest since 2009. Investors added about $300 million in commodities assets in June, taking the total to $325 billion, Barclays estimates.

Commodities revenue at the 10 largest banks fell 18 percent last year amid reduced volatility, Coalition said in February. The Bloomberg Commodity Index (BCOM) of 22 raw materials retreated 9.6 percent last year, a third consecutive annual decline. The gauge has increased 0.2 percent this year.

Fewer Staff

The number of employees in fixed income, currencies and commodities at the 10 banks fell about 9 percent in the first half to 17,700 from a year earlier, Coalition said.

JPMorgan may complete the sale of its physical commodity unit for $3.5 billion to Mercuria Energy Trading SA in the early part of the fourth quarter, Chief Financial Officer Marianne Lake said on a conference call on July 15. Russia’s OAO Rosneft agreed in December to buy Morgan Stanley’s oil trading, storage and transportation businesses.

Credit Suisse’s Chief Executive Officer Brady Dougan said last month its commodities-trading unit was losing money on low volatility and client volumes. Its decision to exit part of the business would probably result in half of its 80 workers being cut, people briefed on the matter said at the time.

Barclays will withdraw from most commodity activity while continuing to trade precious metals and derivatives tied to oil, U.S. gas and commodity indexes, it said in April.

Coalition’s index includes Goldman Sachs, Morgan Stanley, Bank of America Corp., JPMorgan, Citigroup Inc., BNP Paribas SA, Barclays, Credit Suisse, Deutsche Bank AG and UBS AG.

To contact the reporter on this story: Chanyaporn Chanjaroen in Singapore at cchanjaroen@bloomberg.net

To contact the editors responsible for this story: James Poole at jpoole4@bloomberg.net Alexander Kwiatkowski


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