Goldman Sachs beats JP Morgan to commodities trading top spot
Goldman Sachs has beaten investment banking rival JP Morgan to claim the accolade of the largest bank by commodities revenue, after the latter divested its raw materials business.
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According to London-based analytics firm Coalition, JP Morgan was ranked second in 2014, followed by Morgan Stanley.
In 2014, JP Morgan sold parts of its physical commodities business to Mercuria Energy Group, as several banks including Barclays, UBS and Deutsche Bank retreated either wholly or partially from the physical trading market.
JP Morgan continues to provide financing and brokerage services and products linked to commodities. Overall, despite niggles during the second half of 2014, the 10 largest banks earned more money in commodities compared to the year before, boosting revenues by 9% on an annualised basis to $4.9bn, Coalition’s report noted.
However, banks remain under political pressure to curtail their commodities market activities in the US. On 20 March, at a Senate committee hearing in Washington DC, Federal Reserve board member Daniel Tarullo called for a strengthening of the Dodd-Frank Act to limit the activity of banks in the wider commodities markets.
Tarullo was particularly scathing about Morgan Stanley and Goldman Sachs claiming that "those two firms are by statute allowed to engage in the extraction and transportation of highly combustible materials with substantial risks associated with them".
Most banks are barred from dealing in specific products like copper and zinc. However, an exemption written into US legislation allows firms that became "bank holding companies" after 1999 to continue operating their existing commodities desks including physical trading.
Both Goldman Sachs and Morgan Stanley, which became bank holding companies during the global financial crisis, are currently protected by the said clause. Morgan Stanley is currently seeking a buyer for its physical oil trading unit after a sale to Russia’s Rosneft did not get regulatory approval in wake of Western sanctions on the Kremlin.