Goldman Sachs Group Inc. (GS:US), the fifth- biggest U.S. bank by assets, “never seriously” looked at selling its commodities unit as lenders consider their options amid new rules on proprietary trading.
“While we constantly evaluate all our businesses, senior management never seriously looked at spinning out all or part of our commodity business,” Sophie Bullock, a spokeswoman for the bank in London, said in a statement today.
The Volcker rule may cut profit at the biggest U.S. banks twice as much as earlier estimates if regulators take a strict stance on limiting proprietary trading, Standard & Poor’s said yesterday. Qatar is weighing a potential stake in Morgan Stanley’s commodities unit, Prime Minister Sheikh Hamad bin Jassim Al Thani said last week.
“It seems banks are restructuring or in some cases curtailing their activities in light of the Volcker rule while others haven’t made any changes,” said Robert Finney, a partner at Holman Fenwick Willan LLP in London who specializes in financial services and regulation. “The extra-territorial application that would extend the rule to non-U.S. institutions as well as non-U.S. branches and affiliates of U.S. banks remains uncertain, as does the interaction with new capital and liquidity rules under Basel III. Many institutions hope the rule will be watered down after the U.S. elections.”
The Volcker rule would impair banks’ ability to provide commodity-related hedging and financing services as currently written, Simon Greenshields, co-head of Morgan Stanley’s commodities, said in a comment letter to regulators in February.
Revenue generated by the 10 largest banks’ commodity units slumped 20 percent in the first six months this year to $3.5 billion from $4.4 billion a year earlier, according to Coalition, a London-based research company. Their overall fixed income revenue dropped 1.1 percent to $51.49 billion, it said.
Goldman’s revenue from fixed-income, currency and commodity trading climbed 28 percent in the third quarter from a year earlier to $2.22 billion, it said on Oct. 16. Its value-at-risk, a measure of the company’s potential daily trading losses, fell to $81 million, the lowest since the fourth quarter of 2005.
“Commodities and currencies were both negatively impacted by continued low levels of volatility and volumes,” Harvey Schwartz, who will become chief financial officer at the end of January, said on a conference call with analysts that day.
The Standard & Poor’s GSCI gauge of 24 commodities erased gains for the year today, after climbing the past three years.
The Wall Street Journal today reported that Goldman Sachs held preliminary talks on splitting off its commodities trading unit in recent years.
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