Goldman commodities gambit pays off

As rivals pulled back on commodities trading, Goldman Sachs Group Inc opted to stay the course and yesterday had reasons to feel vindicated, Reuters reported.

Without Goldman disclosing revenue for commodities trading specifically, chief financial officer Harvey Schwartz highlighted commodities trading as a bright spot in the bank's broader fixed-income trading business, which had a rough quarter.

Schwartz said over the last couple years, the company had often been asked the question, it seemed like everybody else was getting out of the commodity business, how come Goldman was not getting out. 

Other lenders, including JPMorgan Chase & Co, Morgan Stanley and Deutsche Bank, pulled back from commodities trading, deciding to sell large chunks of their operations partly due to political pressure.

The Federal Reserve as also an investigatory panel in Congress had examined Wall Street banks' role in trading of physical commodities - actual barrels of oil rather than futures linked to the price oil.

Meanwhile, Fed officials had expressed concerns that commodities-linked risks, such as oil spills by tankers leased by banks, posed threats to the financial system. A number of lawmakers had accused banks, including Goldman, of driving up commodity prices for consumers and businesses for its own profits.

Meanwhile, nypost.com reported that under Lloyd Blankfein, Goldman Sachs reduced compensation to one of its lowest levels in years as lighter trading - the bank's main profit centre - forced the Wall Street powerhouse to resort to aggressive cost-cutting.

The bank reported its net income in the fourth quarter was down 7.1 per cent from last year, to $2.17 billion, or $4.38 a share, still beating estimates but disappointing nonetheless.

Revenue was down 12 per cent to $7.69 billion in the period.

Goldman bankers, who were expecting to hear about their bonuses yesterday, were bracing for smaller paychecks than last year.

The bank had cut its compensation ratio even as it increased its staff about 3 per cent, meaning that there was less to go around for many bankers.

Goldman's compensation and benefits expenses stood at $12.7 billion for its 34,000 employees last year, Schwartz said on a call.

That worked out to an average compensation of $373,235 per person and the figure included salaries, bonuses and deferred awards.

That worked out to 36.8 percent of revenue, down from 36.9 per cent a year earlier, while it was 36 per cent in 2009 - the lowest since Goldman went public in 1999.