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Major banks' commodities revenue up 9% in 2014: report

[LONDON] Commodities revenue at the top 10 investment banks climbed by 9 per cent last year, reversing three years of declines, due to increased activity in energy markets as oil went into freefall, a consultancy said on Thursday.

Revenue earned by leading banks from commodity trading, selling derivatives to investors and other activities in the sector rose to US$4.9 billion from US$4.5 billion in 2013, London-based financial industry analytics firm Coalition said.

"Despite significant business downsizing, revenues rose due to increased activity in the energy markets. Meanwhile, metals continued to be impacted by regulatory pressures and weak underlying demand," Coalition said.

Higher volatility in financial markets typically opens up more trading opportunities. Brent oil prices tumbled nearly 50 per cent last year due to a global glut of crude oil and as the Organization of the Petroleum Exporting Countries failed to cut output.

In 2013, commodity revenues dropped 18 per cent in the third year of declines due to weak investor interest and low volatility.

Despite the recovery in top banks' commodities revenue last year, it was still just over a third of the US$14.1 billion they racked up in 2008 at the height of the commodities boom.

Many investors have shunned commodities in recent years due to lacklustre performance and as the sector was buffeted by economic events, moving in step with other assets.

The 19-commodity Thomson Reuters/Core Commodity CRB index shed 18 per cent last year.

Banks continued an exodus from commodities trading in 2014 due partly to tougher regulation and higher capital requirements after the global financial crisis.

Credit Suisse said in July it was winding down commodities trading, joining the likes of Deutsche Bank , JPMorgan and Barclays in either exiting or significantly downsizing their activities in commodities.

Coalition tracks the following banks: Bank of America Merrill Lynch, Barclays, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs , JPMorgan, Morgan Stanley and UBS.