Morgan Stanley outshines rivals with higher commodities risk

Reuters Business News
Posted: Oct 19, 2011 12:23 PM
Morgan Stanley outshines rivals with higher commodities risk

By Barani Krishnan

NEW YORK (Reuters) - Morgan Stanley <MS.N> generated higher revenue from commodities in the third quarter by piling on more trading risks than rival Wall Street banks as oil, metals and grains prices swung wildly.

Morgan Stanley's value at Risk (VaR) for commodities averaged $32 million per day in the third quarter versus $29 million in the second quarter and $30 million in the third quarter of 2010, the investment bank's quarterly results showed on Wednesday.

In comparison, Goldman Sachs Group Inc <GS.N> saw a 36 percent tumble in its commodities VaR from the second quarter, while JPMorgan Chase <JPM.N> reported a 6 percent drop.

Actual earnings from commodities are one of Wall Street's closest-guarded secrets. VaR is a measure of the maximum amount of money a bank is willing to lose in day on a market. It is one of the few guides to determining how aggressive a bank has been in a quarter for trading a particular asset class, in this case commodities.

Aside from equities, commodities were the only segment of trading where Morgan Stanley took higher risks in the third quarter, the bank's results showed.

Morgan Stanley said combined revenue from fixed income, currencies and commodities (FICC) -- another oft-used measure by U.S. investment banks -- rose to $3.9 billion in the third quarter, from $2.1 billion in the second quarter and $847 million a year ago.

It said "strong results from interest rate products and commodities" contributed to the higher FICC, helping it to post an overall profit in the third quarter.

Commodities suffered some of their biggest losses in years during the third quarter as worries about the European debt crisis escalated, causing the dollar to surge against the euro. Signs that China may no longer be counted on to bump up demand for raw materials as Western economies teetered also sent many investors in the asset class scrambling for the exits.

The Reuters-Jefferies CRB index <.CRB>, a global benchmark for commodities, ended the quarter down 12 percent for its sharpest quarterly loss since the 2008 financial crisis.

Goldman, which posted a third-quarter loss, said its commodities business actually generated more revenue than in the second quarter although treacherous markets forced it to slash risks.

Bank of America Merrill Lynch <BAC.N>, another major player on Wall Street, also posted a third quarter profit but said its FICC business suffered from weaker client activity and adverse market conditions.

JPMorgan said its third-quarter profit fell, blaming FICC declines.

(Editing by Marguerita Choy)