Major banks' first-half commodity revenue climbs

Commodities revenue at the top 10 investment banks climbed by about a fifth in the first half of the year as a cold winter boosted business in US power and gas and some investors returned to the sector, a consultancy said. Revenue from commodities for the leading banks rose 21 percent to $3.3 billion in the first six months after falling by a similar percent last year, London-based financial industry analytics firm Coalition said in a report on Thursday.
"Despite a sequential decline in 2Q, outperformance was driven by strong revenues in US power & gas on the back of the cold winter, combined with a general improvement in investor appetite," Coalition said. Many investors had shunned commodities in recent years due to lacklustre performance and as the sector was buffeted by economic events, moving in step with other assets.
Commodities was the best-performing asset class in the first half as the sector became more sensitive to supply-demand fundamentals and less to economic factors, offering diversification again for investor portfolios. While some investors are returning to the sector, banks are still departing from commodities trading, due partly to tougher regulation and higher capital requirements after the global financial crisis.
In the first quarter, banks' commodities revenue rose by 26 percent, the first rise in first-quarter revenue since 2011. The 19-commodity Thomson Reuters/Core Commodity CRB index gained 10 percent in the first half after shedding 5 percent in the full year 2013.
Since end-June, the index has pared gains after some commodities markets lost steam, including oil and grains, weighed down by plentiful supplies. So far this year, the CRB is up 3.8 percent. Banks' commodities revenue has been steadily declining in recent years as some institutions have slashed exposure and others have shut commodities units.
Credit Suisse last month became the latest bank to join the exodus, saying it was winding down commodities trading, joining the likes of Deutsche Bank, J.P. Morgan and Barclays in either exiting or significantly downsizing their activities in commodities. 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. Coalition tracks the following banks: Bank of America Merrill Lynch, Barclays, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, J.P. Morgan, Morgan Stanley and UBS.