At Goldman, Trading Is King

Once again, Goldman Sachs demonstrates why the world is so keenly interested in trading activities at the biggest U.S. banks. Three-fourths of its $45 billion in 2009 revenues come from its trading and principal investment group, and most of that from bond, commodity, and other fixed income trading.

Trading pushed Goldman to $13 billion in profits for the year and $5 billion for the fourth quarter, far surpassing expectations and even the showings of far larger rivals. The report comes on the same day the Obama Administration will unveil new proposals to limit the trading activities of big banks as a way of reining in risk-taking and preventing another financial crisis. For Goldman, however, trading enabled it to rebound from the depths of the crisis. In the fourth quarter of 2008, which ended in November of that year, it reported a $2 billion loss.

During that period, Goldman won approval to convert to a bank holding company, agreeing to tighter regulation by the Federal Reserve as a way of weathering the crisis. Its risk-taking allowed it to set itself apart from peers like JPMorgan Chase and Morgan Stanley, but also brought it a heap of criticism. In a Congressional hearing earlier this month, Lloyd Blankfein, Goldman's chief executive, was unable to convince a skeptical Financial Crisis Inquiry Commission that Goldman's proprietary trading was not unfairly benefiting the firm at the expense of clients.

For the year, trading netted $34 billion, and of that $23 billion came from fixed income, currency and commodities. Trading helped Goldman carry the quarter, too, bringing in $6 billion of revenues, the bulk of the firm's overall $9.6 billion in fourth quarter revenues. Investment banking and asset management pale by comparison. Revenues for advisory and underwriting activities came in at $4.7 billion for the year and $1.6 billion for the quarter. Asset management brought in $6 billion for the year and $1.6 billion for the quarter.

http://blogs.forbes.com/streettalk/2010/01/21/at-goldman-trading-is-king/