Goldman Sachs - New CEO Cuts Commodity Trading - Eaglesinvestors

Commodity trading was once a massive money-maker at Goldman Sachs and an essential part of the bank’s identity. However, commodity trading at Goldman Sachs is now on the chopping board. Goldman intends to make certain changes commodity trading desk. Let’s find out more about how and why this decision has come to be.

Golden Sachs brief introduction

Goldman SachsThe Goldman Sachs Group is a leading worldwide investment banking, investment management and securities firm that offers many different financial services to a diversified and substantial client base. Their client base includes corporations, governments, financial institutions, and individuals. GS is headquartered in New York and upholds offices in all major financial centres all over the world.

The new CEO of Goldman Sachs cuts commodity trading

Goldman stayed committed to commodities even as their competitors pulled back following the financial crisis. Hence, Today, Goldman Sachs is one of the country’s largest gas marketers and is constructing a green-energy solutions business that is for corporate clients. Meanwhile, it is also dipping its toe into the budding market for liquefied natural gas.

Commodity trading has been the heart of Goldman as well as in physical commodities including; Silver SI00 and gold GC00 as well as the derivatives pegged to such assets. Numerous large investment firms chose to cut back those platforms in the wake of the financial crisis of 2008-09 and as new regulations such as the Volcker rule put the limelight on procedures that put banks’ capital at risk.

The Exit

An exit from commodities would occur after Lloyd Blankfein, former Goldman CEO, came from the bank’s famous commodity platform J. Aron & Co. Blankfein stepped down as the CEO last year. He was succeeded by David Solomon and his lieutenants, who are all former investment bankers, who may be trying to cut a new path forward for the prestigious investment bank.

Therefore

Goldman SachsGoldman plans to make cuts to its commodities trading after a month-long review indicated that the business is burning through a lot of capital for very little profit; According to people who are familiar with the matter. David Solomon has reportedly been re-evaluating each of the bank’s businesses trying to identify areas to implement some cuts. Executives are contemplating pulling back in some areas, that include the physical trading platinum, iron ore, and other metals; And reducing costs related to the extensive storage and transportation network essential to support its trading operations.

According to the journal

Goldman traders experienced their worst year on record in the year 2017. Although there was a small rebound last year, a few people have faith that the Goldman Sachs commodities desk can recover the profitability it had ten years ago when it contributed up to 15% of Goldman’s pre-tax profits.

Since then, constricted regulations have pushed most banks away from the business. Morgan Stanley sold off a fleet of oil tankers and scaled back it’s trading of energy. JPMorgan quit most physical trading entirely. Banks’ commodities trading revenues declined from $8.3bn in 2011 to $2.5bn as of 2017, according to information firm Coalition, as the organisation migrated to less-regulated firms like Glencore.

Overall

Traders handcuffed – Taking risks by one measure. The funds its commodities traders stood to lose in a day’s work — is down by 60% since the year 2010. A hiring extravaganza in 2017 intended to bring in star traders failed to catalyse a turnaround; As a result, Goldman Sachs co-head of commodities, Jeremy Taylor, left recently.

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