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UPDATE 1-Morgan Stanley commodity revenues up 'modestly' as bank waits on Fed
October 18, 2013 / 3:53 PM / in 4 years

UPDATE 1-Morgan Stanley commodity revenues up 'modestly' as bank waits on Fed

By David Sheppard
    LONDON, Oct 18 (Reuters) - Morgan Stanley's commodity revenues were
up modestly in the third quarter, the bank said on Friday, extending a mild
recovery, as the company awaits a decision from the Federal Reserve on the
future of its physical trading business.
    Speaking on the bank's third-quarter earnings call, Chief Financial Officer
Ruth Porat said that a recovery in client activity had bolstered commodities for
the second straight quarter, following a 77 percent collapse in revenue
year-on-year in the first three months of 2013.
    "Commodities revenues were up modestly, driven by higher client activity,"
Porat said.
    But Porat and Chief Executive James Gorman offered few clues on the call
about the future of the bank's multibillion-dollar physical commodities trading
operation, which has come under threat from the Federal Reserve's surprise
"review" of Wall Street's role in the natural resources supply chain.
    "It's been a good business for us for many years. We want to be smart about
what we do," Porat said, adding there was, no update on the future of the
business at this point.
    Morgan Stanley is widely seen as the bank that has gone further than any
other into real-world commodity business, with its oil storage and terminalling
subsidiary, TransMontaigne, trading of crude oil, gasoline and diesel cargoes
worldwide, and stakes in a number of power plants.
    Speaking to Reuters earlier on Friday, Porat said the bank has not received
any clarity from the Federal Reserve about whether new regulations will force it
to sell or change parts of its commodities business.
    "We've read what you've read in the press - we don't have any update other
than that," she said.
    Wall Street's commodity traders came under intense political and regulatory
pressure this summer following a number of market manipulation scandals, and a
focus in Washington on whether "too big to fail" banks may be taking on unknown
financial risks by operating oil tankers and electricity plants.
    On Thursday Goldman Sachs reported that its commodity net revenues
declined significantly in the third quarter, though it reiterated its commitment
to the business and said it had made more money year-on-year. 
    JPMorgan Chase & Co, which rose after the financial crisis to
challenge Morgan Stanley and Goldman in commodities, announced in July it was
selling its physical commodities business, arguing the returns did not justify
the regulatory and financial risks.
    Morgan Stanley has previously floated a possible sale or spin-off of its
commodity business, but initial interest from Qatar's investment fund last year
appears to have gone cold.
    Morgan Stanley's overall third-quarter revenue jumped 50 percent, helping
adjusted earnings beat expectations, as higher income from equities sales and
trading made up for a drop in the Wall Street bank and brokerage's fixed-income
    The bank's fixed income, currencies and commodities revenues fell 44 percent
to $835 million, with the slight improvement in commodities overshadowed by far
lower bond trading volumes as investors expected the Fed to start tapering its
monetary stimulus program.
    Morgan Stanley trimmed its commodity trading risk in the third quarter from
the previous three months but held its position as the Wall Street company with
the most money at play in the sector.
    Morgan Stanley's Value-at-Risk (VaR) in commodities stood at $20 million in
the third quarter, down from $24 million in the previous three months and
unchanged from the third quarter of 2012. That compares with $17 million for
Goldman Sachs and $13 million for JPMorgan.
    The bank "stayed very close to home in regards to risk," in trading, CEO
Gorman said on the conference call.
    Morgan Stanley, typical of Wall Street banks, groups its commodities trading
revenue under the fixed income, currency and commodities category in its
quarterly earnings and does not break down the sector individually, often
leaving VaR as one of its key risk-reward indicators for commodities.
    Goldman Sachs trimmed its VaR in the sector to $17 million from $19 million
in the previous three months, while JPMorgan held its VaR unchanged at $13
                              ------2013------    ------2012-------   --2011--
                              Q3     Q2     Q1    Q4   Q3   Q2   Q1   Q4    Q3  

 * JPMorgan            13    13     15    14   13    13   21   20   15  
 * Goldman Sachs        17    19     21    20   22    20   26   26   25  
 * Morgan Stanley       20    24     20    22   22    27   27   28   32  
 * Bank of America    n/a    14     15    15  12.5 11.9  13.1 12.1  15.7
 * Citigroup            n/a    12     34    13   15    18   14   18   21  
Note: Bank of America and Citigroup report VaR data separately in later 10-Q
filings with the Securities & Exchange Commission.

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