SEC Asks Goldman to Break Down Trading Revenue by ProductMichael J. Moore
The Securities and Exchange Commission asked Goldman Sachs Group Inc. to disclose how much products such as mortgages and commodities contribute to its trading revenue to give investors more clarity on how the firm makes most of its money.
Goldman Sachs said it will give “additional qualitative disclosure” of the revenue by product types in future filings, according to correspondence with the regulators released today about the New York-based firm’s 2012 annual report. The SEC said it was satisfied with that response.
Goldman Sachs’s institutional client services division, which includes stock and fixed-income trading, generated 53 percent of the firm’s revenue last year. Like most of its competitors, Goldman Sachs only provides a single revenue line for fixed-income trading, which includes products ranging ranging from Treasuries to distressed bonds and uranium.
The SEC noted that the firm produced a third of its revenue from market-making and made the request “in light of its significance.” Goldman Sachs said that its quarterly and annual filings already include details of the composition of some revenue by product.
That breakdown includes market-making and “other principal transactions” revenue reported through the firm’s investing and lending unit, which houses the company’s own investments. It excludes trading commissions and net interest income.
Goldman Sachs generated $4.37 billion from interest rates, $5.51 billion from credit and $5.8 billion from equities in 2012, according to the breakdown. It lost $1 billion from currencies, while producing $575 million from commodities and $1.97 billion from “other.” The data don’t reflect how the firm runs its business, Goldman Sachs said in the filing.
Goldman Sachs was among banks that faced questions about disclosure of their derivative activities at a Senate Finance Committee subcommittee hearing this week. U.S. Senator Sherrod Brown, an Ohio Democrat, held the hearing to discuss possible risks and conflicts of interests of banks owning physical commodities businesses.
“Existing public disclosure is woefully inadequate to understand and evaluate the nature and scope of U.S. banking organizations’ physical commodities trading and assets,” Saule T. Omarova, a law professor at the University of North Carolina at Chapel Hill, said in testimony at the hearing. “When it comes to energy and other key commodities, what is hidden from the public view may be highly consequential.”