Global commodities-related revenue at the top 10 investment banks tumbled by a quarter in the first half of the year, due to a retreat in business from the power and gas sectors after last year's surge, a consultancy said on Tuesday. Revenue earned by leading banks from commodity trading, selling derivatives to investors and other activities in the sector fell to $2.6 billion from $3.5 billion in the same period of 2014, financial industry analytics firm Coalition said.
"Despite increased volatility in oil prices and better corporate activity, commodities revenues declined due to (the) absence of prior-year gains from the unusually cold winter," Coalition said. Last year, a cold winter in North America created volatility and boosted activity in power and gas, while this year trading has increased in the oil sector due to a sharp fall and partial recovery in prices.
Higher volatility in financial markets typically opens up trading opportunities. The banks' commodities revenue had climbed 9 percent to $4.9 billion during the whole of last year, reversing three years of declines, due to increased activity in energy markets as oil went into freefall. Yet revenue was still just over a third of the $14.1 billion banks racked up in 2008 at the height of the commodities boom. Many investors have shunned commodities in recent years due to lacklustre performance and as the sector was buffeted by economic events, moving in step with other assets.
The 19-commodity Thomson Reuters/Core Commodity CRB index shed 18 percent last year and is down 7.5 percent so far in 2015. Banks continued an exodus from commodities trading in 2014 due partly to tougher regulation and higher capital requirements after the global financial crisis. 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.
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