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Goldman Sachs Gears For Cuts In Commodities Trading, Chooses Automation To Maintain Margins

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The ticker symbol and logo for Goldman Sachs is displayed on a screen on the floor at the New York Stock Exchange (NYSE) in New York, U.S., December 18, 2018. REUTERS

What’s The News?

Goldman Sachs is planning to trim its commodities trading arm as the investment banking industry gets ready for some serious jobs cuts. Click To Tweet

What Does This Mean?

According to the Wall Street Journal report, Goldman is discussing stepping back in physical trading of iron ore, platinum, and other metals, adding the reductions will be presented to the board later this month.

The commodities markets once considered a huge moneymaker with fat margins and easy money were training ground for a generation of executives including former chief Lloyd Blankfein.

With the front-to-back review called under the leadership of new CEO David Solomon, Goldman Sachs has been re-examining each of its businesses in an effort to make cuts where necessary. This move will help the bank to see its resources are optimally deployed.

Why Does It Matter?

The Bigger Market Picture: After the months’ long review, Goldman Sachs acknowledged its commodities business was using heavy capital and displaying very little profit.

Furthermore, this doesn’t help the fact that Goldman traders had a bad year on record in 2017 where a $100mn bet on energy misfired. While there was a slight rebound last year, few believe that the commodities desk can regain profitability it had a decade ago when it contributed as much as 15% of Goldman’s pretax profits, as reported by the WSJ.

It is understood that Goldman does not have plans to exit commodities altogether or to pull back from particular business lines inside the division.

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