October 18, 2011 / 2:38 PM / in 6 years

Goldman commods risk tumbles on tough markets

NEW YORK (Reuters) - Goldman Sachs (GS.N) commodities business generated more revenue in the third quarter but treacherous markets forced it to slash risks, leading to overall losses at Wall Street’s top bank.

Goldman Sachs Group Inc’s Value at Risk (VaR) for commodities averaged $25 million per day in the third quarter versus $39 million in the second quarter and $29 million in the third quarter of 2010, financial results on Tuesday showed.

The VaR numbers -- which are a measure for how much of a bank’s money is at risk on one day of trading a particular asset class -- underscored the difficulties for commodities investors in the just-ended quarter as energy, metals and agricultural markets plunged amid wild price swings.

Like most Wall Street banks, Goldman does not break down profit and loss figures for commodities.

In its earnings report, it posted a wider-than-expected loss of $428 million in the third quarter.

It said the fixed income, currency and commodity (FICC) transactions it executed on behalf of clients fell 36 percent from a year ago to $1.73 billion in the third quarter, citing a lack of confidence among investors and corporate clients.

But Goldman also said it generated more revenue on commodities compared to some asset classes during the quarter.

Aside from interest rates, commodities were the only portion of FICC that generated higher revenue in the third quarter compared to a year ago, Goldman said in the report.

In call with analysts to discuss the bank’s earnings, Goldman’s Chief Financial Officer David Viniar also said receipts from commodities were better than in the second quarter.

“Commodities improved relative to a difficult second quarter as elevated volatility and macro uncertainty drove higher levels of business,” Viniar said.

Commodities suffered some of their biggest losses in years during the third quarter as worries about the European debt crisis escalated, causing the dollar to surge against the euro. Signs that China may no longer be counted on to bump up demand for raw materials as Western economies teetered also sent many investors in the asset class scrambling for the exits.

The Reuters-Jefferies CRB index .CRB, a global benchmark for commodities, ended the quarter down 12 percent for its sharpest quarterly loss since the 2008 financial crisis.

The tough market conditions have cut into risk and revenues levels for commodities at other major Wall Street banks.

Bank of America Merrill Lynch (BAC.N), another major player on Wall Street, said on Thursday its fixed income, currency and commodities businesses as a whole saw lower sales and trading revenues in the third quarter from thinner client activity and adverse market conditions.

JPMorgan Chase (JPM.N) , also a Goldman rival, reported last week that its commodities VaR fell slightly in the third quarter from the second quarter.

Aside from commodities, Goldman’s risk taking in equities and currencies trading also fell sharply in the third quarter. In equities, the bank’s VaR averaged $24 million versus $35 million in the second quarter and $58 million a year ago. In currencies, its risk levels fell to $15 million from $39 million a quarter ago and $29 million a year back.

However, risk in trading of interest rates instruments, spiked, reaching $90 million from $76 million in the second quarter and $88 million a year ago. That helped the group’s overall VaR to finish at $102 million from $101 million a quarter ago and $121 million a year ago.

Reporting by Barani Krishnan; editing by Jim Marshall

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below