Goldman Q3 commods strong despite profit plunge
NEW YORK (Reuters) - Goldman Sachs, the No. 1 U.S. investment bank, said on Tuesday it has doubled its risk in commodities trading from a year ago, leading to strong quarterly results from the sector despite a 70 percent plunge in net profit.
Goldman said its Value-at-Risk (VaR) for commodity prices stood at $51 million for the third quarter ended August 29, against $48 million in the second quarter and $24 million in the third quarter of 2007.
VaR is a measure of the money that a company could lose in a single day from a particular trade. In the case of investment banks, which seldom break down profit and loss figures for commodities, VaR is one way of gauging their appetite for proprietary trading in raw materials markets.
Goldman said net revenues from trading in fixed income, currency and commodities as a group totaled $1.6 billion in the third quarter, down 67 percent from the second quarter. It attributed the fall to weak results in credit products and mortgages, affected by broad declines in asset values.
But commodities still produced "strong results", higher when compared with the third quarter of 2007, said Goldman, which is one of a few global banks involved in both futures and physical trading of commodities, including crude oil.
Commodities from oil to metals and grains saw one of their most powerful bull runs in history during the first two quarters of 2008, before fears of a global economic slowdown brought prices down sharply.
Goldman is the second U.S. bank in a week to report a greater tolerance to commodities' risk during the third quarter.
Lehman Brothers, the country's No. 4 investment bank which filed for bankruptcy this week, said its commodities VaR averaged $15 million in the third quarter versus $12 million in the quarter to May.
Analysts, however, said that fourth quarter VaR for commodities could be lower at most U.S. banks as commodity prices continue to fall from a global flight to safety.
"I think what we are seeing is literally just an evaporation of liquidity," said Zachary Oxman, senior trader at Wisdom Financial in Newport Beach, California.
"Selling is begetting more selling and we're getting pockets of nonexistent liquidity. That's what is such a dangerous situation," Oxman said.
(Reporting by Barani Krishnan; Editing by Marguerita Choy)
