Oil rescues big banks' commodities profits as gold income tumbles

The world's 12 biggest investment banks cashed in on commodity price volatility caused by the coronavirus in the first quarter, with big increases in income from oil offsetting a tumble in precious metals, consultancy Coalition said.

The banks' net revenue from trading, selling derivatives and other activities in the commodities sector was around $1.5 billion over January-March, the financial industry analytics firm said.

That compares to around $1.2 billion in the same period in 2019, it said.

The first quarter was marked by huge swings in commodities markets as the coronavirus spread across the globe, shutting industry, confining people to their homes and paralysing supply chains.

Prices of oil, metals and some other key commodities slumped, while gold prices in London and New York, the two main bullion trading centres, saw their biggest divergence in decades.

Investment banks are often able to profit from volatility because it can make clients more active and they can bet on prices moving in a certain direction.
 

The 12 banks did best in oil, with net revenue almost doubling from the first quarter of 2019 to around $700 million, Coalition research director Amrit Shahani said.

Precious metals revenues, however, plunged to less than $100 million from close to $250 million a year ago, he said.

What had been a very profitable quarter was hammered in late March when prices of New York futures rose sharply above London rates and the value of banks' positions across the two markets fell sharply, Shahani said.

Banks' revenues from commodities increased in 2018 and 2019 after a decade of decline since the global financial crisis as heightened government regulation and poor performance made them shrink their commodities businesses.

The 12 banks Coalition tracks for its quarterly reports are Bank of America Merrill Lynch, Barclays, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan, Morgan Stanley, Societe Generale and UBS.