Photographer: Craig Warga/Bloomberg

Major Banks' Commodities Revenue Sinks to 11-Year Low

Updated on
  • Raw-materials revenue slid 41% in first half, Coalition says
  • Drop likely to reflect struggles at Goldman’s commodity unit

Commodities revenue at major banks took a further knock in the first half, sinking to an 11-year low amid poor performances in energy.

Combined income at 12 top banks including Goldman Sachs Group Inc. and JPMorgan Chase & Co. slid 41 percent to $1.3 billion in the first six months of the year, analytics firm Coalition Development Ltd. said in a report Thursday. Earnings were particularly hit in power and natural gas.

Banks’ commodities revenues -- now the smallest in Coalition data going back to 2006 -- have been shrinking in recent years amid regulatory scrutiny, low volatility, curbs on proprietary trading and diminished investment by their hedge-fund clients. This year’s drop is also likely to reflect bad performance at Goldman Sachs, whose once mighty commodities unit is now struggling.

“The general environment continues to be negatively correlated toward the commodities business,” George Kuznetsov, head of research at Coalition, said by phone. “Given the lack of volatility, it becomes more difficult for banks to generate money on the trading side.”

Coalition tracks commodities revenues at top Wall Street and European banks. It doesn’t comment on specific firms.

Goldman Sachs, the top bank by commodities revenue in 2016, told investors earlier this year that its raw-materials division suffered its worst ever quarter in almost two decades. Traditionally one of the two biggest commodity traders on Wall Street, Goldman stood out in recent years for sticking with the business while competitors including JPMorgan, Morgan Stanley and European lenders such as Deutsche Bank AG and Barclays Plc scaled back.

Goldman’s commodities unit brought in about $95 million in the first quarter, and was barely positive in the second quarter, two people familiar with the matter previously said.

Read more: Goldman is said to seek stars to revive commodities unit

The Bloomberg Commodity Index, a measure of investor returns from 22 raw materials, has fallen 2 percent this year. Sugar, natural gas and crude oil are among the worst performers.

“We don’t see that much volatility in commodities pricing,” Kuznetsov said. “It will be very difficult to recover, actually, from where we are now right now.”

Coalition monitors commodities activities related to power, gas, oil, metals, coal and agriculture. Other banks tracked by the firm include Morgan Stanley, Societe Generale SA, UBS Group AG and HSBC Bank Plc. The analysis doesn’t include Australian, Canadian or emerging-market banks that have a large presence in commodities.

— With assistance by Javier Blas

(Updates commodities performance in eighth paragraph.)
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