Goldman Q3 commodity revenue down 'significantly' on Q2
Goldman Sachs' net revenues in commodities "declined significantly" in the third quarter from the previous three months, the bank said on Thursday, but reiterated its determination to remain in the physical trading business.
Speaking on the bank's third-quarter conference call, Chief Financial Officer Harvey Schwartz said the firm's commodity business had suffered from a difficult trading environment between June and September, a period when the bank came under intense political and regulatory pressure over its role in the natural resources supply chain.
"Commodities declined significantly versus the second quarter under challenging macro conditions and lower client activities," Schwartz said in prepared comments. Before revealing the quarter-on-quarter decline, the bank earlier said in its earning release that commodities was one of the few areas in its Fixed Income, Currencies and Commodities (FICC) business where third-quarter results had improved from the same period last year. The bank's commodity division, J. Aron, faced significant regulatory and political pressure during the third quarter as a series of investigations and lawsuits over the operations of its Metro International metals warehouse business drew widespread attention, amid allegations the firm has purposely created long wait times for metal consumers....MUCH MORE
..."Net revenues in commodities were higher compared with the third quarter of
2012."
Goldman, typical of Wall Street banks, groups its commodities revenue under
the fixed income category in its quarterly earnings and does not break down the
sector individually, often leaving VaR as one of its key risk-reward indicators
for commodities.
The bank as a whole reported a slight fall in quarterly profit as weak
bond-trading volumes hit revenue in the Wall Street bank's biggest business.
VaR's
------2013------ ------2012------- --2011--
Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
* JPMorgan 13 13 15 14 13 13 21 20 15
* Goldman Sachs 17 19 21 20 22 20 26 26 25
* Morgan Stanley n/a 24 20 22 22 27 27 28 32
And from the Wall Street Journal:
Fed Weighs Surcharge on Banks’ Physical Commodity Businesses
Fee Could Spur Firms to Pare Involvement in the SectorFederal Reserve officials are considering imposing a new capital surcharge on Wall Street banks thatown oil pipelines, metals warehouses and other lucrative physical-commodities assets, according to
people familiar with the matter.Such an approach could encourage banks to pare back their involvement in physical commodities, which has increasingly raised concerns among regulators and lawmakers.
While no decision has been made, imposing a surcharge would allow the Fed to sidestep a legal jam caused by existing laws that set Goldman Sachs Group Inc. and Morgan Stanley apart from peers and give the former investment banks broad leeway to own commodities.
The Fed has been considering scaling back the ability of banks to own such assets amid concerns that commodities ownership has expanded beyond what regulators originally envisioned. To avoid a regulatory situation where only some banks can own commodities, the Fed is considering a surcharge that would ensure all banks hold more capital to account for potential risks posed by the assets they own or lease.
The Fed could structure such a surcharge in a number of ways, though one possibility would set the charge based on the size and riskiness of affected assets.
It wasn’t clear how a surcharge might be calculated or how costly it could be for the banks. High surcharges would crimp returns on commodities businesses, potentially forcing banks to exit and serve as a de facto ban on those activities. “If they’re doing it in a way to drive them out, it will be pretty obvious,” one bank adviser said....MORE
