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Wall Street is tapping a real gusher in 2011, as heightened volatility and higher prices of oil and other raw materials boost banks’ profits.

A group of 10 large banks—including Goldman Sachs Group (NYSE: GSNews) , Morgan Stanley (NYSE: MSNews), J.P. Morgan Chase (NYSE: JPMNews), Citigroup (NYSE: CNews), Bank of America (NYSE: BACNews) and Barclays PLC (NYSE: BCSNews)—saw their commodities revenues increase by 55% in the first quarter, according to Coalition, a firm that analyzes the performance of investment banks. After a disappointing 2010, commodities was the fastest-growing segment in banks’ fixed-income businesses in the first three months of this year, even though it still accounts for just 7% of banks’ total fixed-income revenues, Coalition said.

Commodities trading is a bright spot for institutions that face new regulatory clampdowns on practices that previously fattened bank profit margins, such as trading with their own capital and slapping customers with hefty “overdraft” fees. Oil is up about 10% so far this year, settling at $ 100.29 a barrel Wednesday, and commodities such as gold and copper are close to all-time highs.

J.P. Morgan has emerged as one of the biggest beneficiaries of the commodities boom sweeping Wall Street. The bank’s commodities unit—which employs about 1,800 people, more than any of its rivals—made more money during the first quarter than through all of last year, according to people familiar with the matter. So far this year, the unit has earned roughly $ 750 million and is on course to beat its 2011 internal target of $ 1.2 billion, these people added. The J.P. Morgan unit earned just $ 514 million for all of 2010, falling far short of its goals.

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The performance at J.P. Morgan is largely the result of a recent acquisition and the run-up in prices and volatility levels. But the early results are being celebrated inside the halls of J.P. Morgan after the bank struggled through defections, miscues, bad press and a coal trade that cost the firm $ 130 million in 2010. The New York bank is making a bold and costly bet that a recent string of commodities-trading acquisitions will transform the operation into an industry leader and unseat rivals Goldman Sachs and Morgan Stanley. A bank spokeswoman declined to comment on any commodity-trading dollar figures, which it doesn’t make public.

Commercial banks such as J.P. Morgan and Bank of America may have an edge over rivals like Goldman Sachs and Morgan Stanley, as new financial rules force Wall Street to cut back on “proprietary trading” with the bank’s own capital and turn the focus of their business toward helping clients. Commodities desks at commercial banks can tap a larger corporate client base, offering hedging services to producers and consumers of raw materials, facilitating transactions for hedge funds and selling commodity-linked investment products to pensions and sovereign-wealth funds.

The revenue jump takes some heat off J.P. Morgan’s embattled head of commodities, Blythe Masters, who went before the board last fall to explain why her group had fallen short of its goals and assured employees she still had the support of her superiors; her boss, Jes Staley, who runs the investment bank, had indicated he would re-evaluate the business this year if revenue dipped below $ 1 billion, according to a person familiar with the matter.

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J.P. Morgan isn’t the only financial-services firm getting a commodities lift this year. At Credit Suisse AG (NYSE: CSNews), commodity-trading revenue for the first quarter was $ 74 million, as compared with a loss of $ 66 million during the same period last year. At Goldman’s fixed-income group, commodities were the only division that showed revenue growth in the first quarter, bucking the trend of a 28% decrease in the bank’s fixed-income business, including credit products, interest-rate products and currencies.

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Similarly, Morgan Stanley reported higher revenue in commodities, despite a 35% fall in its fixed-income-group revenue during the last quarter. Bank of America and Deutsche Bank (NYSE: DBNews) also were up, according to people familiar with the situation.

J.P. Morgan’s jump so far in 2011 is larger than its peers’ partly because it started from a lower base. The firm recorded only about $ 35 million in commodities-trading revenue through the first two quarters of 2010. It also is benefitting from a series of acquisitions of assets from RBS Sempra Commodities, a deal that gave the bank a larger client base in oil, natural gas, power and metals. Earlier purchases of Bear Stearns and assets from UBS gave the firm a larger presence in energy and agriculture.

So far this year, oil and other commodities have gone through wild gyrations amid concerns over supply shortages caused by unrest in the Middle East and raging inflation in emerging countries, a distinct reversal from last year’s tepid performances. Crude oil’s volatility level shot up to 45.16 in early March, a level unseen for a year, according to the Chicago Board Options Exchange. As prices move up and down sharply, oil producers and airlines that want to lock in their profit margins or costs are turning more often to banks for hedging help.

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At J.P. Morgan, the energy desk has been a main driver of this year’s strong performance, contributing roughly half of total revenue for the commodities unit to date, or roughly $ 370 million. That is more than double its revenue for all of last year.

A recent industry survey showed J.P. Morgan’s energy desk has expanded its client base significantly over the past two years. It now has vaulted to become the top energy dealer, surpassing Goldman Sachs and Morgan Stanley. By the measure of the number of clients it deals with, it now has 41% of the over-the-counter energy market, up from 34%, according to Greenwich Associates.

J.P. Morgan’s oil desk has been an important factor in the success of the bank’s commodities business. The desk is run by Jeffrey Frase—a former Goldman Sachs trader for 17 years who jumped to Lehman Brothers Inc. in 2007, the year before it failed—to run its oil desk.

Lehman went under in September 2008, and Mr. Frase joined J.P. Morgan in October 2008. He is known in the oil-trading community as a “sustainable earner,” said one person familiar with J.P. Morgan’s commodities group.

A J.P. Morgan spokeswoman said Mr. Frase declined to comment.

Some notable trades that worked well for Mr. Frase’s group in the first quarter included one on the widening spread between Brent and Nymex crude oil—the two benchmark prices—which helped return about $ 38 million in the first quarter. J.P. Morgan also made money on fuel oil and Asian oil markets, according to people familiar with the matter.

The desk took a hit in early May when commodities were sold off broadly, giving back some of its gains.

Another group that has performed well is natural-gas liquids, headed by Stuart Kinder. It made roughly $ 60 million through late May, according to people familiar with the matter.

The base-metals unit, helped by the 2010 acquisition of the Henry Bath warehousing business from RBS Sempra, has made more than $ 100 million. The precious-metals unit has made roughly $ 75 million, and agriculture more than $ 50 million, these people added.

Write to Carolyn Cui at [email protected] and Dan Fitzpatrick at [email protected]

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