Investor Appetite for Risk Boosts Goldman

Goldman Sachs said its traders lost money on only one day in the last quarter, underlining how volatile markets and investors’ appetite for risk have helped revive Wall Street’s biggest source of revenue.

Wall Street sign
Wall Street sign

Goldman , Morgan Stanleyand other banks reported a sharp rebound in trading results in early 2011, as investors sought higher returns and placed bigger bets on currencies and commodities.

The bank’s traders produced more than $100 million in revenue on 32 separate occasions, Goldman said on Tuesday in a filing with the US Securities and Exchange Commission.

In comparison, it had 68 trading days in the whole of 2010 where its traders made more than $100 million in revenue.

“The combination of political, natural and monetary events represented a shift in trading in March,” said Dick Bove, an analyst with Rochdale Securities.

He said uprisings in the Middle East and problems in Japan set off an increase in commodities and currency trading.

JPMorgan Chase and Bank of America each ended the first quarter without a day of trading losses, while Morgan Stanley lost money on three days.

Goldman also said on Tuesday that it could lose up to $2.7 billion from legal and regulatory proceedings, compared with $3.4 billion previously forecast.

Yet it said the Commodity Futures Trading Commission had told the bank’s clearing arm that it would recommend legal action against the unit.

According to the filing, the CFTC alleged that the bank’s clearing division had failed to detect one of its clients engaging in improper trading within customers’ accounts.

Goldman’s first-quarter pick-up had helped restore some investors’ confidence that new regulations on trading activities had not hampered big banks’ ability to profit from their fundamental role of taking risks on behalf of clients.

Meagre trading results in late 2010 had raised concerns that these businesses might not recover from the financial crisis.

Goldman shares rose $1.28 to $150.40 on Tuesday. Of the first quarter’s 62 trading days, Goldman lost between $25 million and $50 million once. Goldman lost money on 25 trading days last year, including 13 in the fourth quarter. It had 19 losing days in 2009, a record low.

Goldman’s fixed income, currency and commodities trading revenue totalled $4.33 billion during the first quarter, more than double the $1.64 billion the desks tallied during the past three months of 2010. Equities trading revenue rose 27 percent to $979 million.

Trading volumes in a number of key markets, from corporate bonds to US Treasuries to energy futures, are on pace to rise this year, according to UBS analyst William Tanona.

“Solid product demand and the improving macroeconomic environment will underpin solid levels of activity and client engagement and result in good FICC revenues once again,” Mr Tanona wrote this month.

Mr Tanona forecast Goldman would produce $8.86 billion in trading revenue this year.