Q1 Commodities Revenue for Major Banks Surge 26% - Analyst Blog

Though banks are under regulatory pressure to hold back their commodities business, according to London-based based financial industry analytics firm – Coalition, commodities revenue of the top 10 investment banks jumped 26% to $1.8 billion for the quarter ended Mar 31, 2014. Notably, these banks include The Goldman Sachs Group, Inc. GS, Morgan Stanley MS and JPMorgan Chase & Co. JPM among others.

Broadly, commodities revenue rose as U.S. power and gas revenues gained momentum due to volatility created by the cold winter in North America. Moreover, investor product performance reflected recovery from an extremely low base due to improved client activity levels. However, revenues from rates to emerging markets decreased.

Commodities units have been performing well in 2014 to date, driven by supply-demand fundamentals and therefore investors are also diversifying their portfolios.

Over the past few years, commodities revenue at banks were on the downtrend as some firms reduced their exposure while others are closing down their commodities units. Such actions are driven by tougher regulatory requirements and higher capital cushion to be maintained by banks following the global financial crisis. Notably, new global capital rules have also increased cost for the banks for holding commodities.

Some banks that has taken measures to shut their commodities units include Barclays PLC BCS, Deutsche Bank AG, Bank of America Corp., JPMorgan and Morgan Stanley.

Once a lucrative sector, the commodity business is fast losing its sheen. Intensifying regulatory and political scrutiny, higher capital costs and decline in profitability are the primary reasons making the business unfavorable for banks across the world.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
BARCLAY PLC-ADR BCS: Free Stock Analysis Report
 
GOLDMAN SACHS GS: Free Stock Analysis Report
 
JPMORGAN CHASE JPM: Free Stock Analysis Report
 
MORGAN STANLEY MS: Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research