Goldman Sachs: Still Mostly A Huge Bond Trading Machine

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The Goldman Sachs booth on the floor of the New York Stock Exchange

One of the pleasures of the new openness from Goldman Sachs is getting to delve a bit more deeply into the inner workings of the vampire squid. And one thing that is apparent: the blood funnel was especially thirsty during the first few months of 2010.

Looking at Goldman's new disclosure of operating results by segment, it's obvious that Goldman's traders had a mammoth first quarter last year. The firm's fixed income, currency and commodities traders recorded over $6 billion in revenues for the first three months of the year. The equities traders took in nearly $1.3 billion.

For some perspective about how outside the box that kind of performance is, keep in mind that in the second and third quarters Goldman's fixed income, currency and commodities desk took in just $3.3 billion and $2.6 billion, respectively. The equities traders took in just $312 million and $860 million.

What in God's name happened in the first quarter of this year that had Goldman raking in such outsized profits? This looks like yet another version of the greatest trade ever.

Of course, its worth asking the question the other way as well: what went wrong on the equities desk in the second quarter? Goldman's equities traders earned nearly $1.3 billion in the first quarter and $860 million in the third quarter. But in the second quarter, Goldman's stock traders earned just $312 million.

Goldman says that these traders are not operating some kind of internal hedge fund or a proprietary trading desk. They are engaged in client execution and market making. But these revenues, regardless of how Goldman wants to characterize them, are trading revenues. The fees and commissions are accounted for elsewhere.

No other source of revenue even comes close to what these bond traders make for Goldman. The closest runners up earned a fraction of what the bond traders made in the first quarter. Stock traders took in just under $1.3 billion in the first quarter. The guys running hedge funds and such for Goldman's asset management division also made just under $1.3 billion in their best quarter.

The investment bankers, by the way, topped out at just under $450 million.

Despite all the talk you'll hear about Goldman's new client friendly orientation, keep in mind that what really makes money for Goldman is trading.

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