Tags: Big | Banks | Miss | Commodities | Boom

WSJ: Big Banks Failed to Cash in on the Gold Rush

Wednesday, 16 Feb 2011 01:06 PM

Surging commodities have made good investments during the past couple of years but one group has apparently missed out — big Wall Street Banks. Wall Street's revenue from commodities, generated from helping clients trade and manage their risk, fell by an average of about 40 percent last year, The Wall Street Journal reports.

In financial reporting, banks don't break out results from commodities alone but group them with currencies and bonds.

The problem, the newspaper reports, is that big banks invested in large and liquid energy markets like oil and natural gas, which had a lackluster 2010.

Price swings, which help Wall Street traders make money, didn't really happen last year in oil and gas like they did in metals and agriculture markets.

Gold, copper and cotton hit record highs in 2010, and investors piled into the market, the Journal reported.

AP061108057623-(1).jpg
Gold price sets record highs.
"If we look at the larger banks in the market, they have not had their greatest year," says Peter Henry, a senior consultant at Commodity Search Partners, an executive-search firm.

Some big banks appear to want less exposure to commodities risks.
Goldman Sachs's commodities trading risk has hit a near seven-year low, according to Reuters.

The bank's Value-at-Risk for commodities stood at $23 million for the fourth quarter of last year, down down 20 percent from the $29 million in the third quarter and almost 40 percent lower than a year earlier.

The Value-at-Risk measures how much of a bank's money is at risk on a day for trading an asset class.

"I think Goldman is consciously making smaller bets on commodities," Matt McCormick, a banking analyst at Bahl & Gaynor in Cincinnati, Ohio, tells Reuters.

"Any time you go back to a low of 2004, you are clearly making a substantial call."

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Surging commodities have made good investments during the past couple of years but one group has apparently missed out big Wall Street Banks. Wall Street's revenue from commodities, generated from helping clients trade and manage their risk, fell by an average of about 40...
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