Commodities revenue at the 10 largest investment banks rose to a two-year high in the first quarter even as companies from JPMorgan Chase & Co. to Barclays Plc shrank operations, according to analytics company Coalition Ltd.
Raw-materials revenue at Goldman Sachs Group Inc., Morgan Stanley (MS) and the other companies making up the top 10 banks jumped 26 percent to $1.8 billion, the highest since the first three months of 2012, Coalition said in a report today. Only commodities showed growth as revenues in other areas from rates to emerging markets declined, the report showed.
“The cold winter in North America created volatility and had a positive impact on U.S. power and gas revenues,” London-based Coalition said. “Additionally, investor product performance recovered from a very low base as client activity levels showed some improvement.”
The banks’ employees in commodities declined 9 percent from last year to 2,098 people, Coalition estimated. Barclays said last month it plans to withdraw from most of its global raw-materials activities, and Deutsche Bank AG and Bank of America Corp. are pulling back as well. JPMorgan and Morgan Stanley are selling units.
Goldman Sachs said last month its revenues from commodities were “significantly higher” in the first quarter and Morgan Stanley reported a “strong” performance. Natural gas futures traded in New York touched a five-year high in February amid freezing weather in the U.S.
The U.S. saw the coldest March since 2002 and the December-February period was the coldest since 2009-10, according to the National Climatic Data Center. About 49 percent of U.S. households use gas for heating, with the biggest consumers in the Midwest, U.S. Energy Information Administration data show.
“Commodities saw broad-based strength across the energy complex, driven by extreme weather in North America and increased client demand,” Morgan Stanley Chief Financial Officer Ruth Porat said April 17 on a conference call.
JPMorgan made the most revenue from commodities last year, followed by Goldman Sachs and Morgan Stanley, Coalition estimated in March.
Commodities revenue at the 10 largest banks fell 18 percent last year amid reduced volatility, Coalition said in February. The Standard & Poor’s GSCI gauge of 24 raw materials had its first drop in five years in 2013 as gold fell the most since 1981 and corn, arabica coffee and wheat slid at least 20 percent. The GSCI index rose 3.4 percent so far this year.
Politicians and regulators have pressed banks to cut back their commodities activities. The Federal Reserve has said it’s considering new limits on trading and warehousing of physical commodities. Policy makers are seeking comment on ways to restrict ownership and trading of commodities such as oil, gas and aluminum by deposit-taking banks. New global capital rules also increased the cost to banks of holding commodities.
Morgan Stanley still expects to complete the sale of a physical oil business to OAO Rosneft amid U.S. sanctions of Russian leaders, Porat said April 17. JPMorgan agreed in March to sell its physical commodities business to Mercuria Energy Group Ltd. for $3.5 billion.
Deutsche Bank is cutting about 200 raw-materials jobs after deciding last year to exit dedicated energy, agriculture, dry-bulk and industrial-metals trading. Bank of America said in January it would dispose of its European power and gas inventory as opportunities shrink and increasing regulation curbs trading.
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