Loading ...Now, a greater portion of investment banks’ commodities revenue is coming from more liquid and transparent products — and generally less profitable — such as jet fuel hedges for airlines, or simple natural-gas swaps, according to an ex-Wall Street trading executive who asked for anonymity so that he could speak freely.
“It’s back to how it was in the mid-90s where it was just a client intermediation, risk management focus,” Trapp said.
Goldman may yet decide that its initial instinct was correct and continue waiting for a rebound in the commodities business. Or it may shrink its commodities division — much as its long-time rival Morgan Stanley has done.
“The low-volatility environment that we’re in now is unprecedented and unlikely to persist,” says Craig Pirrong, a business professor at the University of Houston. “This would probably be the wrong time to get out.”