Even on a Good Day, Goldman Sachs Still Struggles
Goldman Sachs has a problem. Their trading efforts have not had much yield lately; but its not like the market is seeing much growth. Still, the issue at Goldman Sachs seems to be among the worst on Wall Street. As a matter of fact, the company has recorded its worst commodities quarter on record, in the history of the market.
Actually, this trading issue has reached such perplexing peaks that even in a quarter when the massive investment banking firm surprised analysts with higher profits than from the same period last year, it was still not enough to hold the stock up. Analysts say that all of this is primarily due to Goldman’s central function: trading (and mostly in the fixed income and currencies and commodities sectors). And trading—particularly in these areas—is falling faster than the same sector among industry peers.
Taking a closer look: trading revenue, overall, fell 18 percent through the second quarter. The FICC, though, actually fell a whopping 40 percent. Analysts argue that weakness in commodity trading helped push down the growth.
Goldman Sachs chief financial officer Martin Chavez comments, “We are a market leader in commodities, but it was a challenging environment on multiple fronts.” In a conference call with analysts, he goes on to say, “We can have a great asset manager franchise and a great corporate franchise and [we’re] working on both. This is something that all of us are evaluating and making changes and working on, and we’re committed to it. We know we need to do better.”
Indeed, Chavez confirmed that this was, in fact, the “worst quarter ever in commodities,” in the whole of the 73 quarters since Goldman Sachs went public.
He adds, “Not surprisingly given the results, it was a difficult quarter on all fronts. The market backdrop was challenged, client activity remained light and we didn’t navigate the market as well as we aspired to and as well as we have in the past.”
Now trading weakness on Wall Street is nothing new. The market has been volatile for quite some time; and there are always fluctuations. The problem for Goldman Sachs, however, is that commodities continue to get weaker and weaker and, unfortunately, this is the bank’s bread and butter.