It seems that commodity-trading earnings for big banks increase as they benefit from wild swings in oil and gold prices.
According to Coalition Development Ltd, net revenues in commodities from the 12 leading global banks surged to $3.8 billion. This was in the first half of 2020 and are likely to surpass $7 billion for the year. That would make it Wall Street’s best year in resources since 2011.
Commodity-trading revenues increased by 95% from 2019. The gain came as oil prices in April dropped to zero for the first time in history, forcing investors to unwind bets and presenting a rich opportunity for Wall Street traders.
A dislocation in the gold market also drove this. We know that banks were facing mark-to-market losses when New York futures grew to an unusually wide premium over London prices in March. According to Amrit Shahani, Director of Coalition, they’ve since profited from arbitrage opportunities, such as shipping metal to the U.S.
Coalition’s director considers that there are two sweet spots: oil and precious metal. He says that this will be the best year in a decade.
Revenue at top 12 banks is likely to reach highest since 2011
Goldman Sachs Group Inc., an American multinational investment bank and financial services company, summarizes fortunes’ change: trading commodities’ earnings decreased to the lowers on record in 2017. According to news, in May of 2020, it had already reached $1 billion in trading revenues.
Some analysts consider that 2020’s trading revenues will be sustainable. They think that the extreme market situations in this year are doubtful to be repeated.
According to Amrit Shahani, This type of volatility makes it difficult to see how this continues. He believes most banks also consider this is not the case: “that is why they’re working to do more long-term business banks were trying to capitalize on the current situation to persuade corporate customers to do long-term deals”.
The strong showing by banks in commodity trading, led by Wall Street giants like Goldman, Citigroup Inc., and JPMorgan Chase & Co., contrasts with the weak performance of many of the predominantly European lenders that dominate commodity trade finance. That business has been stung by declines after a string of failures and scandals.
Coalition tracks commodities revenues at banks, and such are Goldman, JPMorgan, and Morgan Stanley. The analysis does not include Australian or Canadian. Nor does it include emerging-market banks with a large presence in commodities such as Macquarie Group Ltd. The coalition doesn’t comment on specific firms.