Banks keep commods risk low after two big quarters
Yet, investment banks such as Goldman Sachs (NYSE:GS – News), Morgan Stanley (NYSE:MS – News) and JPMorgan (NYSE:JPM – News) are not willing to stake as much money on raw materials as they were before financial markets crashed.
Although equity and commodity markets had seen double-digit rebounds in the last two years, investor confidence is nowhere near the pre-crisis levels, and that could deter banks from adding freely to risks, analysts said.
“It will take a few years for these banks to adjust,” said Richard Bove, bank analyst for Rochdale Securities in Lutz, Florida.
Goldman, arguably the world’s most powerful bank and one of the biggest commodities traders, showed in fourth-quarter results this week that its Value-at-Risk (VaR) in commodities had dropped to a near seven-year low. VaR indicates how much a bank is willing to lose in a day trading any asset class.
Morgan Stanley, the No. 2 investment bank after Goldman, showed that its commodities VaR was down about 20 percent for the quarter and down about 33 percent from pre-crisis levels.
At JPMorgan, the second largest U.S. bank, commodities risk was virtually flat for the quarter but down more than two-thirds from its 2008 peak.
These numbers came despite a 28.7 percent jump in commodity prices over the two last quarters combined, as measured by the Reuters-Jefferies CRB index (^CRB – News). The last time the CRB rose as much for two consecutive quarters was when it climbed 29 percent in 2008 and 34.5 percent 1973.