Citi Q1 commodities revenue almost doubles as polar vortex hits

NEW YORK Mon May 5, 2014 8:00pm EDT

NEW YORK May 5 (Reuters) - Citigroup Inc's revenue from commodities transactions nearly doubled in the first quarter of 2014 year-over-year, making it the latest bank to benefit from this past winter's soaring power and gas prices as the coldest weather in three decades gripped the United States.

The bank brought in $224 million in principal transactions revenue in "commodity and other contracts," up almost 90 percent from the first quarter last year and just $43 million shy of its total commodities trading haul for all of 2013.

The gains came as the Polar Vortex briefly upended the U.S. natural gas market, with physical prices at the primary New York trading hub spiking more than 20-fold in one day during January as utilities scrambled to secure supplies.

Citi joins a series of firms, including BP Plc and major banks Goldman Sachs, Morgan Stanley and Macquarie Bank, to report decent returns from energy trading arms in the quarter.

The gains also came as the commodities trading landscape undergoes a dramatic shift, with new and existing players fighting for market share as some of the world's biggest banks close trading desks or exit the business altogether due to unprecedented regulatory scrutiny and diminished margins.

For Citi, the gains mark a significant turnaround as it rebuilds its commodities trading operations, which focus on power and gas, after scaling back its exposure to energy, metals and agricultural markets following a government bailout during the world economic crisis.

It's not clear how much of the first-quarter revenue surge was due to those expansion efforts, but it followed a year of meteoric growth. In 2013, commodity transaction revenues hit $267 million, up from $92 million in 2012 and $76 million in 2011.

Citi declined to comment.

But On Citi's April 14 earnings conference call, Chief Financial Officer John Gerspach told analysts that "growth in commodities" was one driver of a relatively strong first quarter in fixed income revenues, which were up 60 percent from the previous quarter to $3.9 billion, but down year-over-year by 18 percent.

Citi's risk exposure to commodities, known as Value-at-Risk (VaR), also rose in the first quarter to $14 million, up from $11 million in the fourth quarter of 2013 and the highest since the first quarter of 2013.

That is more than Australia's Macquarie Bank, which as a less-regulated foreign bank is seeking to pick up some of the slack left by Wall Street's withdrawal.

Still, it's much smaller than its Wall Street rivals: Goldman Sachs reported an average commodity VaR of $19 million in 2013 and Morgan Stanley $21 million in the first quarter.

Last year, Citi was at the bottom of a league of the world's top ten investment banks in commodities compiled by Coalition, a UK consulting firm that tracks banks' trading income.

The top 10 banks together made $4.5 billion trading commodities in 2013, the firm has said. (Reporting by Anna Louie Sussman, Editing by Josephine Mason and)

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