* Tougher regulation and muted markets depress revenue
* Hedging business lacklustre, few big structured deals
* Morgan Stanley seen as worst commodities performer
By Eric Onstad
LONDON, Feb 5 Commodities revenue at top U.S.
banks tumbled by a third in the fourth quarter as tougher
regulation curbed activity amid lacklustre markets and sluggish
demand for hedging, consultancy Tricumen said on Tuesday.
The trend is also likely to have hit European banks, such as
Deutsche Bank and Barclays, which are now in
the midst of reporting results, said Tricumen's Seb Walker.
Banks do not break out commodities revenue when reporting
results, but the British consultancy estimated that the figure
for U.S. banks in the last three months of 2012 was down 32
percent year on year, at between $800 million and $900 million.
David Silbert, who recently departed as head of commodities
at Deutsche Bank, told Reuters in November that he expected 2012
global bank revenue from commodities to be halved to $7 billion.
U.S. banks have had to shrink operations to comply with
tighter bank regulation since the 2008 financial crisis. This
includes the Volcker rule banning banks from proprietary trading
- when deals are done by banks for themselves rather than on
behalf of clients.
"In terms of the way the market performed, there were fewer
opportunities, which compounded the fact that you've got some of
the banks looking ahead to Volcker and saying we can't do some
of the business that we've done in the past," Walker told
Many commodity markets traded in tight ranges last year as
investors shunned the sector after suffering losses. The lack of
volatility in markets contributed to weaker hedging activity by
companies, Walker added.
"What's driven this overall has been a lack of the bigger
structural trades, especially as the year progressed. A lot of
the corporates are sitting there saying, 'We've got a pretty
good view of the direction the market's going and it doesn't
make sense for us to do these big hedges'."
WORST SINCE 1995
Tricumen looked at five leading U.S. banks when making its
estimates: Bank of America Merrill Lynch, Citigroup
, Goldman Sachs, Morgan Stanley and JPMorgan
Chase. The latter three are the world's biggest
When Morgan Stanley reported last month, it said that its
fourth-quarter commodities results were the worst since 1995. In
the same week Goldman Sachs said its commodity results were
"Of the big three, Morgan Stanley was at the bottom and our
sense is that JPMorgan outperformed Goldman," Walker said.
Morgan Stanley CFO Ruth Porat told a conference call last
month that the bank had minimal commodities revenue in the
fourth quarter, partly because of the impact of superstorm Sandy
on its oil and power business.
JPMorgan, along with Barclays and Deutsche Bank, emerged as
a leading player in the commodities arena with acquisitions and
aggressive growth over the past decade to challenge established
veterans Goldman and Morgan Stanley.
Deutsche Bank last week posted its worst quarterly loss in
four years after taking nearly $4 billion in charges, but it did
not give details on the performance of its commodities business.
Last Wednesday Deutsche appointed two internal executives to
head its global commodities business after the departure of
Silbert and other commodity executives as it restructured and
cut jobs, a source close to the bank said.
Walker doesn't expect commodities revenue at European banks
to make any significant addition to the global figure.
"Deutsche's commodities team is in some upheaval," he said,
adding that Barclays had a better year.
Barclays reports results on Feb. 12