Scotiabank Q2 commodity trading revenue boosted by precious metals

NEW YORK Tue May 27, 2014 7:24pm EDT

NEW YORK May 27 (Reuters) - Bank of Nova Scotia, one of the world's biggest bullion banks, on Tuesday reported its best quarterly trading revenue from commodities in over a year due to improving precious metals markets even as scrutiny of global bullion pricing intensifies.

In its second quarter to end-March, Canada's third-largest bank said trading revenue from commodities hit C$98 million, up 9 percent from the prior quarter and highest since the first quarter to end-December 2012, according to a filing.

Commodities was the second-biggest revenue driver in its trading operations after interest rates and credit, accounting for almost a quarter of the total.

In a statement, Scotiabank said global banking and markets net income was boosted by stronger results in precious metals as well as lending and fixed income offset a decline in global equities and Canadian lending.

The results may reflect improving confidence among institutional and retail investors after the gold market's roiling last year. Prolonged strikes in South Africa, a major platinum and palladium producer, also attracted investor interest this year amid concerns about tight supplies.

Even so, the results come at a critical time for bullion banks as century-old gold and silver price-setting benchmarks come under increasing regulatory and legal scrutiny, causing upheaval in global precious metals trading.

Scotiabank is one of four banks that owns a seat on the 95-year old London gold "fix", which is used as a global benchmark for bullion trading. It is one of two remaining banks alongside HSBC on the silver fix.

On Friday, Barclays Plc was slapped with a $44 million fine over attempted manipulation of the gold fix. A source familiar with the fine said it was a one-off and not part of a wider investigation into gold price rigging.

But the move rocked precious metals markets just weeks after news the 117-year-old silver fix will wind down in August following Deutsche Bank's decision to pull out of the fix.

U.S. lawsuits have also accused gold fix banks of rigging prices. Banks have denied the allegations.

SMALL VS WALL STREET

Scotiabank's trading revenue from commodities is still small compared with other businesses, such as personal banking, and with its larger U.S. and European rivals, such as Goldman Sachs and JPMorgan Chase & Co.

Unlike Scotiabank, Wall Street banks' commodities results were boosted by higher energy prices as the polar vortex gripped the United States.

But the results come as Canadian banks push harder into the lucrative commodity trading, in particular in energy markets, aiming to pick up some of the slack left by Wall Street banks' retreat amid a U.S. regulatory clampdown.

Its commodity trading revenue was higher than Royal Bank of Canada, which reported C$80 million in commodity trading revenue for its fiscal second quarter last week.

($1 = 1.0854 Canadian Dollars)

(Reporting by Josephine Mason; Editing by Diane Craft)

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