May 31st, 2012

Commodity Futures – Revenues generated by the 10 largest banks’ commodity units slumped 33 percent in the first quarter as volatility declined, clients reduced trading and gas supplies climbed, according to Coalition, a London-based research company.

Revenues fell to a combined $2 billion from $3 billion a year earlier, Coalition said in a report. Overall revenues at the banks, including from equities, origination and advisory, declined to $51 billion from $53 billion, Coalition said.

The drop in commodity revenues reflects the challenge banks face driving income from energy and metals. Goldman Sachs Group Inc. (GS) Chief Financial Officer David A. Viniar said in April that lower volatility had reduced opportunities in the quarter. The Standard & Poor’s GSCI Spot Index of raw materials rose 6.8 percent in the smallest quarterly move since 2010.

“Poor performance in energy, and particularly gas, which was impacted by an abundance of supply, contributed to the decline,” Coalition said in the report. The firm, founded in 2002, bases its analysis on company announcements, its own research and information from people in the market, it said.

Coalition tracks Bank of America Corp. (BAC), Barclays Plc (BARC), Citigroup Inc. (C), Credit Suisse Group AG (CSGN), Deutsche Bank AG (DBK), Goldman Sachs, JPMorgan Chase & Co. (JPM), Morgan Stanley, Royal Bank of Scotland Group Plc (RBS) and UBS AG. (UBSN) Spokespeople for the 10 companies declined to comment on the report’s findings.

Biggest Loser

Natural gas in New York was the biggest loser on the S&P GSCI Spot Index in the quarter, plunging 29 percent in its worst performance since 2010. Surging production from shale formations has increased U.S. supply. Most-active futures touched a 10-year intraday low of $1.902 per million British thermal units on April 19, and were at $2.393 at 8:27 a.m. in Singapore.

“Weaker forecasts for global economic growth, and thus demand for energy, and weaker client activity coupled with a significant increase in supply of natural gas” translated into lower so-called spreads and commodity revenues at the banks in the quarter, Coalition said in response to questions. “Global commodities markets were less volatile.”

Revenue from commodities accounted for 6.3 percent of $32 billion that the 10 banks generated from their fixed income, currency and commodity, or FICC, divisions, according to Bloomberg calculations based on data in the report. The combined performance of the FICC divisions was unchanged in the first quarter compared to the year-earlier period.

U.S. banks typically don’t disclose commodities-trading revenue, instead combining the business with fixed-income and currency trading in a single line. The Coalition report excluded so-called dedicated proprietary trading and principal investments in its analysis, according to the methodology.

‘Fewer Opportunities’

Goldman’s FICC revenue was $3.46 billion in the first quarter compared with $4.33 billion a year earlier, the bank said in April. “Commodity results reflected lower volatility levels, which drove fewer opportunities during the quarter,” Viniar said during a conference call with analysts that month.

JPMorgan’s revenue from FICC fell 11 percent to $4.66 billion from a year earlier, while Morgan Stanley (MS)’s first- quarter FICC revenue was $2.59 billion, 34 percent higher than a year earlier. Bank of America reported FICC revenue of $4.1 billion compared with $3.7 billion a year earlier.

Marketed U.S. gas production may climb 4.4 percent this year from a record 66.22 billion cubic feet a day in 2011, the Department of Energy said May 8 in its Short-Term Energy Outlook. U.S. gas stockpiles rose 77 billion cubic feet to 2.744 trillion in the week ended May 18, the department said May 24.

- Chanyaporn Chanjaroen in Singapore at Bloomberg.