With the recent announcement that the Federal Reserve Bank and an investigatory panel in the U.S. Congress have examined Wall Street banks’ role in trading of physical commodities versus futures, Goldman Sachs Group has stuck to its plan while other major banks have been pulling out.
While Goldman does not disclose revenue for commodities trading specifically, Goldman Sachs Chief Financial Officer Harvey Schwartz highlighted it as a bright spot in the bank’s broader fixed-income trading business, which had a rough quarter.
“Over the last couple years we’ve often been asked the question: It seems like everybody else is getting out of the commodity business. How come you aren’t getting out of the commodity business?” said Schwartz.
Goldman has said its activities are not unduly risky. The bank has won more business from clients as rivals pulled back, Schwartz said, because it viewed commodities hedging as a critical service for customers, and a good way to win underwriting and merger advisory business.
Reuters reported that not all analysts are convinced that Goldman’s commitment to commodities makes sense.
“If you’re depending on 50 percent decline in major commodity to have differentiated results, that’s problematic,” said Brian Kleinhanzl, a KBW analyst who covers Wall Street banks. “Commodities helped them a little bit, but the big question is: Is that the incremental revenue that you’re getting worth the regulatory scrutiny?”
Morgan Stanley, once viewed as Goldman’s biggest rival in commodities trading, will report its earnings on Jan. 20. Analysts expect the bank to provide an update of its effort to sell a physical oil trading business after a deal with the Russian oil firm Rosneft collapsed last year.
Leave a Reply