Goldman and Morgan Stanley make money the old-fashioned way…

On Wall Street, where just about everyone has lost confidence in financial assets, Goldman Sachs Group Inc. and Morgan Stanley are making money the old-fashioned way: Buying and selling commodities.

Goldman and Morgan Stanley are expected by analysts to report the best second-quarter earnings of the world's biggest securities firms this week, having limited their losses from the collapsing credit market. They also lead Wall Street in commodities trading, where crude oil futures doubled in the past year and the price of products from gold to corn soared to record highs.

Surging prices are attracting investors, as well as companies hedging their positions by buying derivatives. That's played to the strength of Goldman and Morgan Stanley, which dominate the market for commodity derivatives. The two New York-based companies accounted for about half of the $15 billion of revenue that the world's 10 largest investment banks generated from commodities last year, said Ethan Ravage, a financial-services industry consultant in San Francisco.

Commodity trading ``is very large for them, and that is even more important now given what's happening with the rest of the businesses,'' said Frank Feenstra, a consultant at Greenwich Associates, the Greenwich, Connecticut-based research firm whose survey last month found Goldman and Morgan Stanley were the preferred dealers of corporate users of commodity derivatives. ``There are more commodities used, more hedging by companies, and the investor population has increased significantly as well.''

Goldman probably will report a 32 percent drop in second- quarter profit today, and Morgan Stanley may say on June 18 that net income fell 59 percent from a year earlier, according to the average estimate of analysts surveyed by Bloomberg. Tch, tch…

http://www.bloomberg.com/apps/news?pid=20601109&sid=aboqiSz1AZm4&refer=exclusive