Our guiding principle when Goldman Sachs talks commodities:Last seen in "The J. Aron Takeover of Goldman Sachs' (GS)".
Goldman's commodity trading division, J.Aron, is the crown jewel of the whole behemoth.Mother: .....And remember, the Lord loves a working man.
Navin: ........Lord loves a working man.
Father: ......And son, don't never, ever trust whitey.
-The Jerk (1979)
They will do anything...ANYTHING to protect it and further its purposes.
Current GS CEO Lloyd Blankfein came up on the trading side at J. Aron:
"When Blankfein asked about his title, a boss at J. Aron said, 'You can call yourself contessa if you want.'"
-Fortune, January, 2006
From the Financial Times:
Goldman Sachs’ commodities business, known for its muscular trading operation, is rapidly expanding in a plainer and less politically charged area even as listless markets and increased regulation force rivals to beat a retreat.Commodity finance is among the fastest-growing segments of Goldman’s commodities business, the bank’s executives said.
“The financing side of the equation has gone from being a sort of appendage to being a really major organ for us,” Greg Agran, Goldman’s global co-head of commodities trading, said. “When we think about growth going forward over the next few years, I actually think the commodity finance business is one of the areas we are most excited about”.
The shift is one way that Goldman plans to prosper in commodities even as sideways markets and increased competition hit profits and drive rivals such as Barclays, Deutsche Bank and JPMorgan Chase axe or scale back operations. .Commodity finance lubricates the global trade of raw materials. It encompasses everything from short-term lending against international shipment of metal to providing working capital to oil refineries.
Within the industry it is seen as a low-return, low-risk activity and for many years was dominated by large commercial banks in Europe, not investment banks.
Goldman has also cut, with 240 front-office commodities staff equal to about 75 per cent of peak headcount. Revenues have declined, too.Goldman’s J Aron commodities business, acquired in 1981, is one half of the duopoly that for years dominated commodities trading on Wall Street. The other half, Morgan Stanley, is selling its global physical oil merchant business, reducing its footprint.
But senior Goldman executives have publicly committed to keeping the business, which insiders say they intuitively understand. Lloyd Blankfein and Gary Cohn, chief executive and president, respectively, are two of the most prominent members of a powerful cadre of J Aron alumni.
“At Goldman, you always have to be careful that you’re not going to be knocked off when you’re sitting at the top. They’re throwing their lot in with the commodities business because they probably feel if they can turn it round in the next couple of years, it will strengthen their hand,” said a former Goldman commodities executive.
Reporting second-quarter results on Tuesday, Goldman said its fixed income, currency and commodities business continued to face a challenging environment as “market volatility and levels of activity generally remained low”.Banks involved in commodities trading face headwinds. The new Volcker rule ban on betting with a bank’s own funds leaves fewer rewards for traders. Coalition, a consultancy, estimates the revenues of the top 10 banks in commodities fell last year to $4.5bn from a record $14.1bn in 2008.
Derivatives trading, which bankers said constitutes a majority of Goldman’s commodities business, has become more standardised in markets such as benchmark crude oil. The trend of processing more derivatives through clearing houses has eroded Goldman’s advantage as a financially secure counterpart in off-exchange markets....MUCH MORE
