Citigroup Outperforms Peers in Commodity Trading

Citigroup Inc. (NYSE: C) has announced that its gross profit from commodity trading shot higher by 50 percent on a year-over-year basis in 2015. During the previous year, the company has generated an $850 million gross profit in commodities, regardless of the plunge in the prices of crude oil and the chaotic markets.

Citigroup is second in commodity trading judging by revenue. Furthermore, it was also among the top 3 banks for commodity trading back in 2014. In terms of trading in commodities, Goldman Sachs has been the most experienced financial institution and has consolidated its number one spot over the years.

During the earnings report, Citigroup has stated that it had a stronger year in commodities, but has not revealed the exact revenue from fees and trading for last year. Fixed income revenues edged lower by 11 percent on a year-over-year basis, to $3.1 billion. Meanwhile, rates in currencies soared by 5 percent year-over-year, primarily due to the improved conditions in the market in March after a bad start this year.

The total revenue in market and securities services was down by $4.1 billion in 2015. The financial institution still managed to squeeze and ramp up profits in raw materials.

“A volatile commodity price environment during 2015 led to increased client activity and strong returns for our business…for 2016, we are expecting that range-bound markets will result in a more challenging revenue environment,” said the global head of commodities Stuart Staley.

The company has warned investors that this year is already shaping up to be challenging. The earnings results for the first quarter have been the poorest since the financial crisis, amid the low oil price environment. During the past quarters, the prices of oil have been a significant theme for financial institutions as most of them has exposed loans to the energy segment. Together with the prices of crude oil, the prices of commodities have also plunged, creating trading opportunities for investment bankers.

Due to the trading issues, the industry performances can be considered below par. The market sensitive products have been adversely affected the most, as investor sentiments declined. Financial institutions, such as Morgan Stanley and JP Morgan have scaled back when it comes to its commodity business because of higher capital requirements and stricter regulations. On the other hand, Citigroup has been growing its London-based unit, which has approximately 230 employees in its commodity business, as it has expanded its operations to trading in natural gas, coal, precious metals, oil, iron ore, and industrial.

In the current quarterly season, Citigroup as among the first to report its earnings results, surpassing estimates. The profits were still lower by 28 percent on a year-over-year basis. The strong volatility during the first two months of the first quarter weighed on the activity in capital markets, which dropped 15 percent year-over-year.

Regardless of the weaker earnings, Citigroup continues to have a stable financial position. Since the rebound from the middle of February 2016, the stock of the bank has edged up. Yet, it is still lower by 10 percent on a year-to-date basis.

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