Goldman's Commodity Unit Suffers Worst Q1 In A Decade
The leading commodities trader among global investment banks, Goldman Sachs, is assessing the future direction of its commodities business, following the worst start to a year in more than a decade, Bloomberg reported on Monday, citing people with knowledge of an informal internal review.
The fate of the commodities business was one of the items on the agenda of a recent board meeting in London in late June, Bloomberg’s sources said on the condition of anonymity.
Goldman Sachs has not reached any decision regarding the unit, and may not be overhauling the commodities division. According to one of Bloomberg’s sources, it is a common practice for a bank to review the performance of divisions that are not doing very well.
In its Q1 2017 results release, Goldman Sachs said that
“Net revenues in Fixed Income, Currency and Commodities Client Execution were $1.69 billion for the first quarter of 2017, essentially unchanged compared with the first quarter of 2016, reflecting significantly higher net revenues in mortgages and higher net revenues in interest rate products, offset by significantly lower net revenues in commodities and currencies and lower net revenues in credit products”.
Goldman did not quantify then the “significantly lower net revenues in commodities”, but according to one of the people who talked to Bloomberg, weakness in the commodities business persisted after the first quarter, and the commodities division’s start to the year has been the worst in more than a decade.
“Commodities has been and still is an important business for our clients and we will continue to invest in it to ensure we are best meeting their needs,” bank spokesman Michael DuVally told Bloomberg in an emailed statement.
According to U.S. Senate report “Wall Street Bank Involvement with Physical Commodities” from 2014, Goldman Sachs’s “commodity revenues were generally under $500 million from 1981 until 2000, and then began to climb, producing four years of relatively high revenues, from 2006 until 2009, before they once more began to decline.” The peak in 2009 was at US$3.4 billion, said the Senate report, quoting a Goldman presentation from 2013.
According to one of Bloomberg’s sources, Goldman’s commodities revenue for 2016 was less than US$1.1 billion.