Wall Street Banks Stage Commodities Comeback

(Bloomberg) -- The Wall Street commodities comeback is in full swing.

The downtrend appears to be behind banks and hedge funds after a brutal 2017 in commodities trading. Goldman Sachs Group Inc and Morgan Stanley, the fifth and sixth largest U.S. banks by asset size, reported stronger revenues in the third quarter compared with a year ago from the sector. That’s the third consecutive quarter where revenues from commodities, which are reported as part of the fixed income pool, was higher.

JPMorgan Chase & Co last week also reported its third straight quarter of year-over-year increases in the sector, with the bank underscoring that its higher second and third quarter results were in contrast to the “challenging prior year.”

While banks don’t typically break out more detail for commodities, the results come after a rebound in energy prices. Oil has been among the best-performing assets this year as disciplined OPEC supply curbs and looming U.S. sanctions on Iran have pushed global marker Brent up around 20 percent so far.

Goldman Rebounds

Goldman Sachs saw an up quarter “helped by lack of headwind in natural gas and power,” Chief Financial Officer Marty Chavez told analysts during a call.

In 2017, Goldman lost its place among the top three banks in commodities for the first time when losses in natural gas and power dragged it to the worst annual performance in its history as a public company. While the bank reported “significant” increases in the first half of this year, it dropped that adjective in the third quarter when describing the sector, instead only using “higher net revenues.”

Morgan Stanley’s client activity for commodities remained robust in the quarter, CFO Jonathan Pruzan told analysts in a call. The results were supported by “macro movements within the energy complex.”

Combined commodities income at 12 top banks jumped 38 percent to $2.1 billion in the first half of the year, analytics firm Coalition Development Ltd. said last month, equivalent to almost the entire earnings last year.

To contact the reporter on this story: Catherine Ngai in New York at cngai16@bloomberg.net

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Mike Jeffers

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