Blythe Masters, JPMorgan’s global head of commodities, has steered the bank’s expanded franchise to record revenues exceeding $2.8 billion in 2011, more than long-time industry leaders Goldman Sachs and Morgan Stanley, the three banks’ data showed this week.
The more than threefold surge in revenues marks a dramatic turnaround for British-born Masters, one of the top female executives on Wall Street, who came under pressure in 2010, as revenues fell following the acquisition of RBS Sempra’s large metals and energy trading desks, according to sources and company data.
By contrast, Wall Street’s commodity trading pioneers have stumbled, with Morgan Stanley’s revenues shrinking for a third consecutive year — the worst streak since at least 1995 — and Goldman Sachs commodity unit J Aron is nursing a large drop in revenues since raking in more than $4.5 billion in 2009.
The data illustrate the shake-up of a sector long dominated by the oldest commodity franchises on Wall Street, which are struggling after being forced to shut down riskier proprietary trading and amid the threat of losing top talent to aggressive merchant traders. Whipsaw market volatility has also cut into trading and hedging activity by their clients.
Goldman’s Isabelle Ealet, who was promoted out of the division in January after leading it for years, saw revenues stagnate at $1.6 billion last year, according to a regulatory filing by the firm.
Morgan Stanley revenues fell 18 per cent in 2011 due to ‘lower levels of client activity’, the bank said, taking its three-year decline to nearly 60 per cent. Based on Reuters’ calculations, revenues peaked at around $3 billion in 2008, declining to some $1.3 billion last year, the lowest since 2005.
To be sure, the raw numbers themselves are not a definitive indicator. JPMorgan described itself this week as one of the three largest commodities players, and some say it still lags behind Goldman Sachs when adjusting the data for accounting differences among the banks. But the trajectory is clear.
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George Stein, managing director of headhunting agency Commodity Talent in New York, said Masters’ strategy of “dominance through acquisitions and size” had been vindicated.
“Only a short while ago, top commodity executives at her rivals were wondering how long she could survive,” Stein said. “Now it’s their turn to wonder.”
Last year, JPMorgan’s commodities revenues made up more than a quarter of the bank’s total ‘principal transactions’, up from around a tenth in the previous years.
For Goldman Sachs, commodities made up 15 per cent of total ‘market making and principal transactions’ revenues. At Morgan Stanley, commodities’ share of total sales and trading revenues fell to 10 per cent in 2011 from 14 per cent in 2010. It wasn’t immediately clear whether the figures were directly comparable. All three banks declined to comment for this story or on the revenue figures.
Jes Staley, JPMorgan’s chief of investment banking, told analysts on Tuesday the bank was now among the top three in commodities, with 600 professionals and 10 offices globally.
“I think the extraordinary movement that we’ve made in the commodities business pretty much demonstrated in 2011 that this business had arrived,” he said.
Caveats
The revenue figures have not been widely reported, although Goldman Sachs and JPMorgan began releasing commodity trading revenue figures in their regulatory fillings in 2009, lifting the veil on data that had been zealously guarded in the past.
The data come with many caveats. They do not reflect the costs of running the businesses and the banks use different methods to account for certain investments and fees. Gains in one division may be offset by losses on another trading desk.
Goldman Sachs may yet be on top when adjusting for these factors, according to Seb Walker at British financial markets consultancy Tricumen.
Using its own product definition, Tricumen estimates that Goldman Sachs and JPMorgan’s normalized commodity-related revenues are in the region of $2 billion each, with Goldman Sachs a notch ahead. Morgan Stanley has fallen behind in recent times, with 2011 revenues of around $1 billion.
To further complicate the figures, JPMorgan published a second set of numbers for principal transactions revenue. A bank spokesman declined to say which set of data was more representative.
Morgan Stanley has been reporting a year-on-year percentage change figure for its commodities revenue since 2003, and prior to 2001 reported revenue in dollars as well. Its total revenue figures were calculated by Reuters based on an estimated decline of 35 per cent in 2002 revenues.
Other US banks appear far behind. Citigroup reported just $76 million in commodity revenues last year, less than a tenth as much as in 2009, before it sold the proprietary trading unit Phibro to Occidental Petroleum. Bank of America does not provide any data on its commodity division.
Masters’ rise
Until 2008, JPMorgan had struggled to achieve its big ambitions in oil and base metals, finding only moderate success in things like natural gas after buying part of failed hedge fund Amaranth’s trading book. The bank first dipped a toe into the business in the 1990s, prior to its merger with Chase in 2000.
John Fullerton, head of the bank’s commodity business at the time, said it was seen as a strong opportunity for the bank.