May 19, 2014 / 1:05 PM / 4 years ago

UPDATE 1-Major banks' Q1 commodities revenue up 1st time since 2011

* Sector sees increase after three years of decline

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

* Q1 commodity assets under management up 10 pct - Citi (Adds analyst comment, details)

By Eric Onstad

LONDON, May 19 (Reuters) - Commodities revenue at the top 10 investment banks climbed 26 percent in the January-March period, the first gain in first-quarter turnover since 2011, due to higher U.S. power and gas turnover plus stronger investor interest, a consultancy said.

Revenue from commodities for the leading 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 on Monday.

It marked the first year-on-year increase in the first quarter since 2011, when revenue surged to $3.3 billion from $1.4 billion in the same period of 2010. Since then the trend had been downward, although there were fluctuations.

Part of this year’s gains stemmed from the energy sector, Coalition said. “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 macroeconomic factors.

The 19-commodity Thomson Reuters/Core Commodity CRB index is up 9.4 percent this year after shedding 5 percent in 2013.


The revival of investor interest in the asset class was also reflected in data compiled by Citibank, showing commodity-linked assets under management (AUM) rose 10.25 percent in the first quarter to $394 billion.

While the figure is far below the recent peak of $555 billion in April 2011, the rise is significant, analyst Aakash Doshi said.

“The across-the-board first-quarter increase in market valuation of index, ETP (exchange-traded products) and actively managed investments totalling $37 billion does confirm the sharp turnaround for commodities this year after shedding 22 percent in AUM during 2013,” he said in a note.

Many investors had shunned commodities in recent years due to lacklustre performance and as the sector was buffeted by macroeconomic events, moving in step with other assets.

But as the global economy has recovered, commodities have gone their own way, influenced more by supply-demand fundamentals and once again injecting diversity into portfolios.

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 (FICC) category.

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 shut 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 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, Morgan Stanley and UBS. (Editing by David Evans and Dale Hudson)

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