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Wall Street mystery solved: $100 million wrong-way bet behind Goldman's trading whiff

  • Goldman's weak second-quarter trading results were partly due to a bad call on regional natural gas prices, according to The Wall Street Journal.
  • The bank posted a stunning 40 percent sales decline in its fixed income, currency and commodities business during the June quarter.

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Why did Goldman Sachs do so poorly trading, according to its second-quarter earning report, while its competitors such as Morgan Stanley did better?

That was the big question asked by many investors and we're beginning to find out the reason.

The Wall Street Journal is reporting Goldman's weak trading results were partly due to a bad call on natural gas prices.

"Goldman Sachs Group Inc. lost more than $100 million in a wrong-way bet on regional natural-gas prices this spring, a setback that played a large role in the New York bank's subpar second-quarter trading performance," the article said Friday, citing people familiar with the matter.

The bank bet that natural gas prices in Ohio and Pennsylvania would rally on the build-out of new regional pipelines, according to the report. Instead gas prices declined in May and June.

Goldman's stock fell 3.4 percent since it reported second-quarter earnings on July 18 through Thursday versus a 1.2 percent drop for the S&P 500. It reported a stunning 40 percent sales decline in its fixed income, currency and commodities business.

In comparison Morgan Stanley posted only a 4 percent decline in its fixed income sales and trading revenue during the same quarter.

Goldman Sachs did not immediately respond to a request for comment.

See here for the full Wall Street Journal report.