By Matt Scuffham

NEW YORK, (Reuters) – Wall Street banks are increasing their commodities trading exposures, making them more vulnerable to swings in asset prices following Russia’s invasion Ukraine, according to first quarter earnings disclosures.

Goldman Sachs Group Inc (NYSE:) and JPMorgan Chase & Co (NYSE:) both reported an uptick in a commodities trading risk measure, with Goldman’s now the highest in a decade, according to a Reuters review of bank filings.

Since Russia invaded Ukraine, oil, gas, and wheat markets became more volatile. Western countries also imposed sanctions against Russian trade. The results suggest that banks are effectively managing risk.

Nickel trading was stopped by the London Metal Exchange after it rose to over $100,000 per tonne. According to sources, the spike in nickel prices was caused by short-covering by the top global producers.

Wall Street used to be a huge commodity trader. However, they have slowed down since 2007-09 when tighter regulations made it difficult for them to trade with their own funds. The result was increased costs and shrinking profit margins.

The exposures of banks to commodities trading have been steadily increasing over the past 2 years, as the Federal Reserve increased liquidity in capital markets.

Fed actions drove asset values up and caused massive investor purchases. This obstructing the normal functioning of the market created a boon for investment banks that deal in precious metals like gold and silver.

The average daily value at risk (VaR), in commodities, for Goldman Sachs Group Inc was $49 million during the first quarter 2022. This is up from $32million in the prior quarter and the highest since over a decade ago, according to the bank.

It was more than double the $33million average VaR the bank maintained in equities and $25 million for currency trades.

An asset bank’s vaR is the value of its potential losses trading that particular asset within a given time period. This applies to commodities such as physical assets, like gold or nickel, and investments and hedge tools like derivatives that allow investors to make a profit on commodities even if they don’t own them.

JPMorgan Chase & Co’s average daily trading VaR in commodities rose to $15 million during the first quarter, up from $12 million the previous quarter and surpassing $12 million for equities and $4 million for foreign exchange.

On a conference call, Chief Financial Officer Jeremy Barnum stated that price increases in commodities led to higher counterparty risk and market risk.

Although commodities trading exposures have been increasing, so far results show that banks are still making money. Goldman reports a 21% rise in FICC (fixed income, currencies, and commodities) trading revenue. JPMorgan’s fixed revenue trading revenues declined by 1% compared to an exceptional year.

Citigroup The (NYSE:) doesn’t report VaR along with its earnings. The bank reported that its VaR in commodities increased year-on-year in each quarter of 2021. Its highest point was $48 million at quarter’s end.

Morgan Stanley (NYSE): Although it has reduced its commodity trading business’ size since the financial crises, the company does not segregate its VaR assets by class.