Big banks set to reap record commodity profits this year By Reuters

By Peter Hobson

LONDON (Reuters) – Investment banks are expected to make a record $20 billion trading and financing commodities like oil, gas and metals in 2022, more than triple what they have gained in the years before COVID-19, analytics firm Coalition Greenwich told Reuters. .

Banks such as Goldman Sachs (NYSE:), Citi and Macquarie have benefited from the massive volatility and supply chain disruptions in commodity markets that began in 2020 and increased this year with the invasion of Ukraine by Russia.

Skyrocketing commodity prices have pushed inflation to decades highs, stifled the global economy and created a cost of living crisis in many countries.

But market volatility means banks can make more money trading commodities and offering financing, risk hedging and other services to customers ranging from traders and funds to utilities and companies. aerial.

“Commodity trading desks have benefited from unprecedented volatility,” said Michael Turner of Coalition.

Vali Analytics, another company that tracks bank earnings, said it expects investment banks to make $18 billion in net commodity profits this year.

Others also cashed in, with commodities traders such as Glencore (OTC:) and Trafigura and energy companies with trading arms such as BP (NYSE:) reporting windfall profits. [nL1N2XW24N ]

Charts: Banks earn billions from commodities: https://fingfx.thomsonreuters.com/gfx/ce/lbpgnkjkbvq/BANKS%20COMMODITIES%20EARNINGS%20SEPT%2022.JPG

Before the pandemic, the glory days of the big commodity banks seemed to be behind them.

During the financial crisis of 2008-09, investment banks earned about $16 billion a year, according to Vali. Banks controlled the ships, warehouses and infrastructure that transported and stored goods and could make money by speculating on price movements.

But tighter regulations in the 2010s forced them to curtail and ban internal speculation, and by 2017 net profit had fallen to $4.6 billion, according to Coalition data.

As of 2020, profits have surged. Most commodity prices fell when the coronavirus hit and then rebounded. Supply disruptions have brought huge profits to companies able to access materials and trade in all markets.

When Russia, a major commodity producer, invaded Ukraine in February, prices soared. The world economy then veered into recession and the prices of most of them collapsed, although they continue to rise.

In the first six months of 2022, investment banks made $6.6 billion from the oil and gas markets, almost the same amount they made in all of 2021, according to data. Coalition data.

In metals, they earned $3.1 billion in January-June, compared to $4.6 billion for all of 2021. In agricultural markets, they earned $600 million, double the 300 million dollars they earned in 2021.

Other major commodity trading banks include JPMorgan (NYSE:), Bank of America (NYSE:), BNP Paribas (OTC:) and Morgan Stanley (NYSE:).