Morgan Stanley commods risk near 2-year peak

By Barani Krishnan

NEW YORK (BestGrowthStock) – Morgan Stanley’s (MS.N: ) second-quarter commodities trading risk neared a two-year peak and analysts said on Wednesday it could steal market share from Wall Street rivals such as Goldman Sachs if it kept the pace.

Morgan Stanley’s Value-at-Risk — an industry measure of how much money a bank has at stake in an asset class — stood at $29 million for commodities in the second quarter, up from $27 million in the first quarter and $23 million a year ago.

It was also the highest commodities VaR for the New York-based investment bank since the $33 million it reported in the third quarter of 2008.

Morgan Stanley did not break down earnings from commodities in the second quarter, but its fixed income and trading net revenues, which typically include commodities, rose to $3.3 billion from $2.96 billion in the first quarter.

The results outshone those of Goldman (GS.N: ), which saw risk and earnings from commodities slip in the second quarter.

Goldman, Wall Street’s top commodities trader, saw its risk in the asset class dwindle to $32 million in the second quarter from $49 million in the first quarter and $40 million a year ago.

Goldman’s earnings as a whole also dropped a sharper-than-expected 82 percent from a year ago, partly because of a one-time expense related to a civil fraud settlement with the government.

The earnings of Goldman and Morgan Stanley are closely tracked by commodity markets as they account for the bulk of Wall Street’s market-making activity for commodities, which include trading and shipping of physical crude oil.

“I think there is an opportunity here for Morgan Stanley to take market share away from Goldman, given Goldman’s recent troubles,” said Tim Ghriskey, chief investment officer at Solaris Asset Management in Bedford Hills, New York.

“Clearly, Goldman’s not going to roll over here at all and there’s a place for two players. But we’ve seen significant consolidation in trading in general and Morgan Stanley can certainly gain market share from other rivals as well.”

Morgan Stanley said the second quarter was “a challenging trading environment” and “net revenues in commodities … were primarily driven by revenues recognized on certain structured transactions.”

Commodity prices fell unexpectedly in the second quarter,

wrong-footing many players. The 19-commodity Reuters-Jefferies CRB index (.CRB: ), a global benchmark for the asset class, fell 5.4 percent, after a 3.5 percent drop in the first quarter.

Some analysts said Morgan Stanley, which expanded its stable of traders in the second quarter, appears to have won in proprietary trading of commodities, while Goldman lost out.

“The answer has to be in proprietary trading, that Morgan got it right and Goldman got it wrong,” said Hugh Johnson, chief investment officer at Hugh Johnson Advisors in Albany, New York.

But Johnson cautioned against writing off Goldman as the No. 1 force for commodities on Wall Street.

“Under the gun as they were, they might have purposely turned the activities spigot down,” he said, referring to a popular theory that Goldman deliberately subdued trading in the latest quarter due to heat from the fraud charge.

“And it is just one quarter,” Johnson said.

JPMorgan Chase & Co (JPM.N: ) — another major commodities player among investment banks with its partial purchase this year of RBS Sempra [ID:nN25140786] — joined Morgan Stanley in sharply raising commodities risk in the latest quarter.

JPMorgan’s second quarter commodities VaR grew to $20 million from $15 million in the first quarter and $17 million in the fourth quarter of 2009.

Stock Market Report

(Reporting by Barani Krishnan; Editing by Lisa Shumaker)

Morgan Stanley commods risk near 2-year peak