The Deflationary Cascade----Big Bank Commodity Revenue Plunges To Decade Low

[David Stockman’s Note: This Wednesday, I’m streaming a live video broadcast from my home in Aspen, CO. I believe the most popular investment of the 21st century is about to implode. The collapse of this $3 trillion bubble could be the “final nail: in your retirement if you’re unprepared. But, if you invest in a discreet alternative investment right now your savings could be spared… and you could actually make up to 300% by July. That’s why I’m hosting this live video training from my home. I’ll lay out all of these details and more for you. All you need to do is RSVP right here before your spot is taken. There’s nothing to buy in order to get access — it’s free.]

By Agnieszka De Sousa at Bloomberg

Revenue from commodities at the largest investment banks sank to the weakest in more than a decade last year, laid low by a rout in prices for everything from metals to gas.

Income at Goldman Sachs Group Inc., Morgan Stanley and the 10 other top banks slid by a combined 18 percent to $4.6 billion, according to analytics firm Coalition Ltd. That was the worst performance since the London-based company began tracking the data 11 years ago, and a slump of about two-thirds from the banks’ moneymaking peak in 2008.

Revenues are unlikely to return to the heights of $14.1 billion seen at the top of the market, according to George Kuznetsov, head of research at Coalition.

"The competitive landscape is very different," he said by phone. "Financial institutions are now much more regulated. We have significantly less involvement of the banks in the physical commodities market, and banks do not take as much risk as they used to in 2008-09." Reduced commodities exposure by funds and other investors last year also contributed to diminished revenues, according to Kuznetsov.

Banks Withdraw

The Bloomberg Commodity Index, a measure of investor returns from 22 raw materials, slumped the most in seven years in 2015, led by a plunge in energy and metals. Banks including JPMorgan Chase & Co., Deutsche Bank AG and Barclays Plc have also been scaling back commodities activity in the past three years amid rising regulatory scrutiny.

Even as oil revenues improved last year on increased activity by corporate clients, U.S. curbs on proprietary trading meant banks couldn’t fully take advantage of a 35 percent plunge in crude by making speculative bets, unlike trading houses and big oil companies.

Last year was one of the best years of all time for trading oil and gas, BP Plc Chief Financial Officer Brian Gilvary said this month. Trafigura Group Pte Ltd.’s oil-trading earnings surged to a record last fiscal year.

A gauge of industrial-metals prices fell by 24 percent last year, the most since 2008. Income from energy markets also returned to normal levels after gains in 2014, according to Coalition.

"A normalization of the U.S. power and gas markets and weakness in metals and investor products drove the overall decline," the company said in a report released on Monday.

Declining commodities revenues helped bring down the performance for banks’ overall fixed-income divisions, according to Coalition. The analytics company tracks commodities activities including power and gas, oil, metals, coal and agriculture.

Source: Biggest Banks' Commodity Revenue Hits Lowest in Over Decade - Bloomberg

David Stockman's Contra Corner is the only place where mainstream delusions and cant about the Warfare State, the Bailout State, Bubble Finance and Beltway Banditry are ripped, refuted and rebuked. Subscribe now to receive David Stockman’s latest posts by email each day as well as his model portfolio, Lee Adler’s Daily Data Dive and David’s personally curated insights and analysis from leading contrarian thinkers.

Get Access