Banks see big drop in 2012 fixed-income commodity revenue -survey

Thu Feb 14, 2013 7:00pm EST

* Commodities make up 24 pct drop in fixed income in 2012

* Drop due to low volatility, shrinking client activity

Feb 14 (Reuters) - Revenue from commodities trading at global investment banks fell by a quarter last year from 2011, making the asset class the worst performer in the fixed-income business of banks, an industry survey showed on Thursday.

Low market volatility and shrinking client activity were reasons for the drop, and the effect was particularly evident in energy and precious metals businesses, according to the survey by the London-based Coalition, a financial services analytics company.

"Performance was also subdued by ongoing concerns about increased regulation and capital sensitivity, pushing banks to re-evaluate their commodities strategies," an executive summary of the Coalition Index said.

"Energy, investor products and precious metals options businesses were notably affected," according to the survey, which covered a total of 10 top banks on Wall Street and in Europe.

The banks covered in the report were Goldman Sachs, JPMorgan, Bank of America, Citigroup, Barclays, Credit Suisse, Deutsche Bank , Morgan Stanley, RBS and UBS .

Commodities as a fixed-income component saw a revenue of about $6 billion in 2012 versus $8 billion the previous year, the survey showed.

That put commodities at the bottom heap of the fixed income category, despite revenue for the category growing as a whole to $92 billion in 2012 from $76 billion in 2011.

Commodity prices, measured by key sector indices, fell for a second straight year in 2012, hurt mainly by Europe's protracted debt woes and also by some worries about the U.S. fiscal crisis. The Thomson Reuters-Jefferies CRB index, which tracks 19 commodities in all, fell more than 3 percent on the year after an 8 percent drop in 2011.

Wall Street investment banks typically do not break down their commodity revenue, preferring to cite them as part of the broader fixed income, currency and commodity category.

In the fourth quarter of 2012, banks such as Goldman Sachs and Morgan Stanley singled out commodities for being a drag on their FICC business. Morgan Stanley particularly said its fourth quarter commodities results were the worst since 1995.

The CRB index for commodities fell 5 percent in that quarter. Investor fears about an U.S. "fiscal cliff" and another possible recession in 2013 had also kept markets on tenterhooks through most of December.