Goldman leads decline as Wall Street commodity revenues plummet

Mon Mar 11, 2013 12:43am EDT

* Goldman commodity revenues down 90 pct since 2009

* JPMorgan commodity revenues down 16 percent in 2012

* MS commodity revenues down 20 percent last year

By David Sheppard

NEW YORK, March 11 (Reuters) - Wall Street commodity revenues crashed last year to their lowest on record, as tighter regulation and limited price swings squeezed the once dominant traders of Goldman Sachs Group Inc, JPMorgan Chase & Co and Morgan Stanley.

All three firms reported double-digit percentage declines in revenues for oil, grains and copper trading in 2012, illustrating how the one-time 'Wall Street Refiners' have withered in the face of subdued markets and restrictions on proprietary trading.

The decline is most stark at Goldman, where commodity revenues collapsed by more than 60 percent year-on-year in 2012 to just $575 million, according to the bank's annual report.

Long considered the top commodity bank on Wall Street for its expertise in both physical and financial markets, Goldman's revenues have now fallen by almost 90 percent since 2009 when they totaled more than $4.5 billion.

Morgan Stanley, Goldman's fellow Wall Street pioneer in commodity markets three decades ago, reported a 20 percent decline in commodity revenues in 2012.

JPMorgan, which has grown its commodity business through a series of bold acquisitions since the 2008 financial crisis and now surpasses both Goldman and Morgan Stanley, saw revenues decline by 16 percent to $2.4 billion.

Spokespeople for the banks, who have regularly declined to discuss their commodity results since they began revealing them in filings in 2009, were not immediately available to comment.


The latest results pose questions about the banks' future strategy in the commodities sector, which was estimated to be worth as much as $14 billion to Wall Street annually at its peak.

Following Goldman and Morgan Stanley's lead, the boom in resource markets that started 10 years ago attracted many big banks to trade oil, metals and agricultural products, but many have struggled since the financial crisis.

The Volcker rule has placed restrictions on trading positions held purely for the banks' own profits as part of the Dodd-Frank Act. Lower market volatility has also cut into clients' trading and hedging activities.

While Brent crude oil averaged a record $112 a barrel in 2012, that was just $1 more than the average price in the previous year.

Wall Street's continued ownership of physical commodity assets, including power plants, oil storage tanks and metals warehouses, is also still under question after the conversion of Goldman and Morgan Stanley to Bank Holding Companies during the financial crisis.

Late last year, Morgan Stanley held discussions about selling part of its commodities business to the Qatari sovereign wealth fund, though that deal appears to be on hold.

Based on Reuters' calculations, revenues at Morgan Stanley's commodity business peaked at around $3 billion in 2008, but have since declined to just over $1 billion last year.

In October, Goldman Sachs denied it had ever "seriously" looked at splitting off its commodities business, after reports said it had held "preliminary internal discussions" about a possible spin-off.

At JPMorgan, which is a relatively late entrant to large-scale commodity trading following its acquisition of RBS Sempra's metals and energy trading desks in 2010, the 16 percent decline may create concern rather than panic.

Global commodity chief Blythe Masters has largely succeeded in her goal of surpassing Goldman and Morgan as the largest bank in commodities, though industry experts say JPMorgan may now start to focus more on costs to boost profitability.

The bank said last year it has 600 professionals in its commodity division, and 10 offices globally.

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Comments (1)
fingerlakes54 wrote:
Most likely the reason for the sharp decline is because the retail brokerage client has yet to come back into the market for fear of being ripped of. Retail customers have voted not only with their wallets but also their feet. This could turn around once they are assured their brokerage house is not placing sell orders on a stock or commodity they just pitched some retail customer to buy. This sector has yet to clean itself up.

Mar 11, 2013 1:57am EDT  --  Report as abuse
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California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

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