Goldman Sachs and Morgan Stanley both reported stronger net revenue in commodities trading during the first quarter on Thursday, as the two longest-serving banks in the sector took on more risk and benefited from rivals scaling back.
Goldman said “significantly higher” net revenue in natural resources trading compared with early 2013 had helped offset lower returns across the rest of its Fixed Income and Commodities (FICC) business, while Morgan Stanley said a “strong performance” in commodities had helped boost FICC net revenue to $US1.7 billion from $US1.5 billion.
Commodities results on Wall Street have been under pressure in recent years due to restrictions on trading with banks’ own money, rising capital requirements, and signs the so-called commodities supercycle may have peaked.
While one quarter does not necessarily reverse a trend, Thursday’s results may illustrate how Goldman and Morgan Stanley are benefiting from rivals exiting or scaling back in the sector, including one-time top five firms like JPMorgan Deutsche Bank.
The top 10 banks in commodities made $US4.5 billion from natural resources trading in 2013, a report from UK analytics firm Coalition showed earlier this year.
While significantly below the near $US14 billion made by banks in commodities in 2008, it still represents a sizeable chunk of Wall Street’s overall earnings.
Both Goldman and Morgan Stanley reported an increase in commodities exposure known as Value-at-Risk (VaR) from the last quarter, with Goldman raising its VaR to $US21 million, the highest in a year.
Morgan Stanley increased its commodity VaR to $US20 million from $US18 million, despite preparing to sell its merchant oil trading business to Russian energy major Rosneft.
Goldman’s overall FICC revenue fell 11 percent to $US2.85 billion from the same period last year.