JPMorgan Chase & Co raised its commodity trading risk in the second quarter, the first time in nine months, but earned less from the sector as prices fell and the bank lost out on a large coal bet.
Value at Risk for commodities at the second largest U.S. bank grew to $20 million in the quarter, compared with $15 million in the first quarter and $17 million in the fourth quarter of 2009, JPMorgan's results on Thursday showed.
VaR is a standard industry measure for how much of a bank's money is at risk on any given day for trading a particular market. In JPMorgan's case, its commodities VaR reflects a 95 percent confidence level.
Despite the higher trading risks, JPMorgan said its earnings from commodities -- which help make up its fixed income revenue -- fell in the second quarter from a year ago.
The bank said its net income as a whole was $4.8 billion, or $1.09 a share, for the quarter -- up from the year-ago level of $2.7 billion, or 28 cents -- beating market expectations.
But year-on-year net revenue fell to $6.3 billion from $7.3 billion, and lower commodities receipts was one reason for that, JPMorgan said.
The decrease largely reflected lower results in credit markets, rates and commodities, the bank said in a statement, without elaborating.
Traders dealing with JPMorgan said last month the bank was believed to have lost at least $175 million in the second quarter due to sour bets on coal.
They said JPMorgan had aggressively bet in recent months on the unusual discount of coal in Europe to South African coal, but was caught out when demand in Europe picked up and the discount narrowed.
JPMorgan has become one of Wall Street's most-watched investment banks for commodities since its takeover this year of RBS Sempra -- the commodities joint venture between Royal Bank of Scotland and U.S.-based Sempra Energy .
It has also been the first major U.S. bank to report earnings for several quarters now, giving a hint of what could come from key rivals such as Goldman Sachs , Bank of America-Merrill Lynch and Morgan Stanley .
Commodity prices have been mostly lower this year, with the Reuters-Jefferies CRB index <.CRB>, a global benchmark for the asset class, falling 5.4 percent in the second quarter, after a 3.5 percent decline in the first.
Much of the losses were accrued in May, when a worsening of the European debt crisis triggered risk aversion that caused investors to flee to the relative safety of the U.S. dollar, making dollar-denominated raw materials costlier in almost all other currencies. Rising stockpiles of oil and grains and weak equity markets completed a perfect storm for commodities.
(Editing by Marguerita Choy)