Major banks Q1 commodities revenue jumps 26 pct

Sun May 18, 2014 7:00pm EDT

* Sector sees increase after years of declines

* Boosted by U.S. power & gas, investor products

By Eric Onstad

LONDON, May 19 (Reuters) - Commodities revenue at the top 10 investment banks climbed 26 percent in the first quarter after years of declines, due to higher U.S. power and gas turnover as well as stronger investor interest, a consultancy said on Monday.

Revenue from commodities for top banks in the first quarter rose to $1.8 billion from $1.4 billion in the same period last year, London-based financial industry analytics firm Coalition said in a report.

"The cold winter in North America created volatility and had a positive impact on U.S. power and gas revenues," it said.

"Additionally, investor product performance recovered from a very low base as client activity levels showed some improvement."

Commodities have been the best performing asset class so far this year and investors have warmed to the sector to provide diversification in portfolios as it becomes more sensitive to supply-demand fundamentals and less to macro-economic factors.

The 19-commodity Thomson Reuters/Core Commodity CRB index is up 9.4 percent this year after shedding 5 percent last year.

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

Commodities was the only sub-sector showing an increase within FICC, but it was not enough to keep FICC revenues from falling 16 percent to $22 billion, Coalition said.

Banks' commodities revenue had been steadily declining in recent years as some institutions slashed exposure and others completely shut down commodities units, hit by tougher regulation and higher capital requirements after the global financial crisis.

The top banks' commodities revenue came in at $4.5 billion last year, less than a third of the $14.1 billion they racked up in 2008 at the height of the commodities boom.

British bank Barclays was the latest institution to join the exodus last month when it said it planned to quit most of its commodities trading businesses.

JPMorgan Chase has sold its physical commodities unit, and Deutsche Bank last year largely exited commodities trading.

Coalition tracks the following banks: Bank of America Merrill Lynch, Barclays, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley and UBS . (Reporting by Eric Onstad, editing by David Evans)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.