JPMorgan alone in sharply boosting Q4 commods risk

NEW YORK (Reuters) - JPMorgan (JPM.N) raised its commodity trading risks by a third in the final quarter of 2011, the only major U.S. bank to sharply raise its exposure to the sector that swung wildly in the quarter.

Among other major banks, Goldman Sachs raised its exposure marginally and Morgan Stanley actually lowered its commodities exposure in the fourth quarter.

Analysts noted that Goldman and Morgan Stanley had turned in bullish price predictions for commodities in 2012, suggesting that they would follow JPMorgan's lead in boosting their exposure to the sector this year.

"I'd expect the Value at Risk in commodities to kind of increase at these firms from here on, as a natural component of their position," said Oliver Pursche, president at Gary Goldberg Financial Services in Suffern, New York.

"If you're bullish, you're going to upgrade your exposure and your risk is going to increase."

Value-at-Risk, or VaR, is a industry parlance for the maximum amount of money a financial institution is willing to lose on a day for trading a particular asset class.

Goldman Sachs (GS.N), Wall Street's giant broker and biggest bank by assets, kept its commodities risk virtually unchanged in the three months to December.

Morgan Stanley (MS.N) cut back on the money it was willing to lose on oil, metals and crops trading as prices remained treacherous for a second straight quarter.

JPMorgan, which transformed its commodities business by buying RBS Sempra in 2010, gaining access to lucrative oil and metals trading in both the physical and futures markets, was the only big financial firm to sharply raise its commodities risk in the fourth quarter.

The three are the world's largest investment banks and commodity trading houses, and analysts said Morgan Stanley and Goldman could take a leaf out of their rival's book based on their higher price estimates for key raw materials.

Pursche said Goldman had been particularly bullish on oil at a recent strategy meeting he had with the firm, whose stock his company owned. "It echoes a similarly strong position on oil and energy markets which I've heard from Morgan Stanley."

While essentially a function of volatility, VaR is also the only publicly available measure of the risk appetite a bank shows towards a certain market, especially when it doesn't break down numbers for that business -- like in the case of commodities.

Goldman's VaR for commodities rose to $26 million in the fourth quarter from $25 million in the third quarter and $23 million from the fourth quarter of 2010.

Morgan Stanley's VaR slid to $28 million from $32 million in the prior quarter. It was $26 million a year ago.

JPMorgan reported a $20 million commodities VaR for the latest quarter, up 33 percent from the previous three months and 43 percent from a year ago.

Commodity markets saw some of their sharpest price swings in the fourth quarter last year. The 19-commodity Thomson Reuters-Jefferies CRB index .CRB, a global benchmark, rose 2.4 percent during the quarter--recovering modestly from sharp declines in two prior quarters.

As prices began declining in the second half of the year, most banks and trading firms cut their forecasts for major commodities such as oil.

Goldman trimmed its 2012 forecast for London-traded Brent to $120 a barrel from $130, citing financial stress in Europe. Morgan Stanley cut its Brent outlook to $100 from $130.

As 2012 dawned, the projections for oil improved, boosted by stronger U.S. economic data and geopolitical tensions and other conditions favorable to energy markets.

An end-December poll of global banks by Reuters forecast U.S. crude oil to average $97 per barrel in 2012, up from $96.50 in November. London's Brent crude was expected to average $105.20, down from $107 previously but still above the $100 mark.

Positive economic data and geopolitics aside, the outlook for commodities -- and, consequently, risk appetite -- could rise sharply this year if the U.S. Federal Reserve hints at another big round of monetary easing.

Since a $600 billion bond purchase program by the Fed -- dubbed Quantitative Easing 2, or QE2 -- ended in the middle of last year, markets have been yearning for an equivalent.

"A QE3 would naturally drive commodities, and there'd be strong chances for risk and VaR numbers to rise in such an environment," said Matt McCormick, banking analyst at Bahl & Gaynor in Cincinnati, Ohio.

(Reporting By Barani Krishnan; Editing by David Gregorio)