* Record net operating income from fixed income, currencies
and commodities unit
* Strong commodity earnings place bank among top peers in
* Analysts caution similar growth may be hard to replicate
(Rewrites throughout to add details and quotes)
By Cezary Podkul
NEW YORK/SYDNEY, May 2 Macquarie Group
earned A$1.1 billion ($1 billion) in net income from commodities
trading in its financial year to March, propelling the
Australian bank into the big leagues of much-larger American
rivals who have long dominated the sector.
In its first results since losing the battle to buy JPMorgan
Chase & Co's physical commodities business, the biggest
on Wall Street, Macquarie said its net trading income from
commodities surged nearly 60 percent as the coldest winter in
three decades in the United States boosted power and gas prices.
Client hedging and trading in its metals and energy capital
division were also up, Macquarie said.
Goldman Sachs and Morgan Stanley, and oil majors including
BP Plc have also reported stronger trading results as the Polar
Vortex slammed the United States.
The one-off weather impact may make it tough to repeat the
growth in the cyclical commodities business, but the gains
underscore Macquarie's ambitions in commodities as Wall Street
and European rivals retreat due to regulatory scrutiny and weak
A commodities business of that size would rank among the
world's top five banks dealing in everything from oil, copper
and wheat, said George Kuznetsov, head of research and analytics
at Coalition, a UK consulting firm that tracks banks' trading
The top 10 banks tracked by Coalition together made $4.5
billion trading commodities in 2013, the firm said in a report
earlier this year.
For Macquarie, commodities' share of the A$1.7 billion in
net income from fixed income, currency and commodities (FICC) -
the bank's trading arm - is now 67 percent, chief executive
Nicholas Moore said during an analyst presentation.
That is up from about 55 percent last year. It is also well
above any bank tracked by Coalition, Kuznetsov said.
The strong gains in U.S. energy markets helped lift
Macquarie's overall net profit over the A$1 billion ($928
million) mark for the first time in four years.
Macquarie's commodities risk exposure, known as
Value-at-Risk (VaR) averaged A$13 million ($12 million) in its
full year, up from A$10 million a year earlier, still much
smaller than its Wall Street rivals. Goldman Sachs reported an
average commodity VaR of $19 million in 2013 and Morgan Stanley
"There are a lot of competitors in the commodities
businesses... Some are leaving, but I can assure you there's
more than enough remaining in that space," Macquarie chief
executive Moore told analysts.
Macquarie's U.S. physical natural gas marketing business is
the fourth largest in North America and the firm is the biggest
non-producer in the space.
Just months after losing out to Swiss trader Mercuria for
JPMorgan's physical operations, Macquarie said it stands by
plans to grow through self-funded growth initiatives and
acquisitions. The past decade has seen it make a handful of
bite-sized U.S. acquisitions.
It bought a natural gas trading desk, Cook Inlet Energy
Supply, in 2005, and followed that with a larger deal for
Constellation Energy Partners' downstream natural gas
trading operations in 2009. It began trading physical power in
2007 and, eventually, physical oil in 2010.
Macquarie expects the segment to benefit from better market
conditions in the medium term, but analysts say weather-related
trading gains in natural gas markets may not be easily
replicated in coming years.
"I'm sure they got some lift from this but the thing is,
does it mean that it's a permanent change? I very much doubt
that," said Al Troner, president of Asia Pacific Energy
Consulting in Houston, Texas.
Macquarie's FICC division, which provides trading, research,
sales and financial services across the globe, posted net profit
of A$726 million for the year-ended March 2014 compared with
A$563 million a year ago.
The combined annual net profit for the company rose nearly
50 percent from a year ago to A$1.27 billion ($1.17 billion).
($1 = 1.07715 Australian Dollars)
(Additional reporting by Jacob Gronholt-Pedersen in Singapore
and Swati Pandey and Melanie Burton in Sydney; Editing by Grant