Major Banks Commodities Revenue Sinks to 11-Year Low

Commodities revenue at major banks took a further knock in the first half of 2017, as major banks commodities revenue sinks to an 11-year low. Which major banks were reported a diminishing revenue in commodities.

7 September, AtoZForex Combined income at 12 top banks including Goldman Sachs Group Inc. and JPMorgan Chase & Co. slid 41 per cent to $1.3 billion in the first six months of the year, analytics firm Coalition Development Ltd. said in a report on Thursday. Furthermore, 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. During regulatory scrutiny, low volatility, curbs on proprietary trading and diminished investment by their hedge-fund clients. Therefore, this year’s drop is also likely to reflect bad performance at Goldman Sachs, whose once mighty commodities unit is now struggling. Head of research at Coalition, George Kuznetsov said:

“The general environment continues to be negatively correlated toward the commodities business. 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.

Major Bank Commodities Revenue Sinks Source: Bloomberg

Major Banks Commodities Revenue sinks and scaled back

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. Two people familiar with the matter said that the revenue was barely positive in the second quarter.

Sugar, natural gas and crude oil are among the worst performers

The Bloomberg Commodity Index, a measure of investor returns from 22 raw materials, has fallen two per cent 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.

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