Goldman Has Fewest Trading-Day Losses Since at Least 2004
Goldman Sachs Group Inc. (GS), which generated 53 percent of revenue from sales and trading last year, recorded losses from that business on 16 days in 2012, the fewest since the bank started reporting the figure in 2004.
The days of losses, detailed in a regulatory filing from the New York-based company today, were down from 54 in 2011 and below the previous low of 19 days in 2009. Traders made more than $100 million on 41 days, down from 54 days a year earlier and the least since 2005.
Goldman Sachs said it’s been redeeming hedge-fund holdings to comply with the Volcker rule and the firm outlined risks to its businesses from attempts to regulate foreign subsidiaries. Revenue from sales and trading advanced 5 percent to $18.1 billion in 2012 even as value-at-risk, a measure of how much the firm could lose from trades in a single day, was the lowest since 2005, the firm reported in January.
“The bulk of what you’re seeing is the decline in market volatilities, it’s not a reduction in risk or capital deployment,” Harvey M. Schwartz, Goldman Sachs’s chief financial officer, told analysts on Jan. 16. “There was no top- down directive, for example, to take less risk.”
Morgan Stanley (MS), owner of the world’s biggest brokerage, reported Feb. 26 that it lost money in its trading business on 37 days last year, down from 64 in 2011 and the fewest since 2007. Traders in JPMorgan Chase & Co. (JPM)’s investment bank lost money on seven days in 2012, down from 26 in 2011.
Goldman Sachs’s net income rose 68 percent last year to $7.5 billion as debt underwriting surged and the firm marked up the value of its own investments.
The firm said in today’s filing that it began redeeming investments in hedge funds to comply with the Volcker rule, which limits such holdings for U.S. banks. Since March 2012, Goldman Sachs has taken back as much as 10 percent of redeemable interests in certain hedge funds each quarter, executing a plan laid out in last year’s annual filing.
The firm also has limited new investments in hedge funds and private-equity funds to 3 percent to comply with the rule, which was proposed in October and requires compliance by July 2014, according to the filing.
New risk factors include efforts by countries and regulators to “ring fence” subsidiaries in order to protect clients and creditors of that unit during times of financial distress, Goldman Sachs said in the filing.
“The result has been and may continue to be additional limitations on our ability to efficiently move capital and liquidity among our affiliated entities, thereby increasing the overall level of capital and liquidity required by the firm on a consolidated basis,” Goldman Sachs said in the filing.
The firm, which has previously listed a catastrophic event in New York City as a risk, added the fact that its two main buildings in the New York area are on the waterfront of the Hudson River. In October, the headquarters in Lower Manhattan and the bank’s building across the Hudson River in Jersey City, New Jersey, had “a little bit of flooding” as a result of Superstorm Sandy, President Gary D. Cohn said at the time.
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