Commodity Trading Slump Costing Jobs

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When reports surfaced late last month that Goldman Sachs would likely begin a fresh round of job cuts, it came as a bit of a surprise. The firm closed 2012 with a strong fourth quarter and was said to have attacked its redundancy problem ahead of its competitors. Then this report came to light.

Commodity trading, a business Goldman has virtually owned throughout its history, took a worse-than-expected nosedive in 2012, with revenues falling 24% from a year earlier, according to research firm Coalition. Goldman suffered worse than others, watching its commodity revenues fall from $1.6 billion in 2011 to $575 million last year. In 2009, the firm generated $4.6 billion in revenue.

Goldman is not alone. Morgan Stanley reported a 20% drop in commodity revenues in 2012. J.P. Morgan saw a 16% dip. The report identified increased regulation and capital sensitivity as the main drivers behind the slump – factors that aren’t likely to change in coming years. In fact, more aggressive cap requirements and stricter regulations – like the Volcker rule – are on their way. Trading volumes and market volatility are also at recent lows.

With lackluster returns, staffing in commodities trading groups at large banks declined by nearly 6% last year, according to the report. The next victims may reside at J.P. Morgan, which grew its commodities business over the last few years while Goldman and Morgan Stanley took more of a wait-and-see approach. Industry experts told Reuters that J.P. Morgan may look to decrease costs in its commodities division – made up of around 600 people – to boost profitability. Stay tuned.

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List of the Day: Getting Referrals

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