Goldman Takes More Risk in Commodities as Earnings Recover

(Bloomberg) -- Goldman Sachs Group Inc. reported slightly higher risk-taking in commodities and signaled a recovery for the business that last year suffered its worst performance since the bank went public in 1999.

Commodity performance increased significantly compared with the second quarter of 2017, Chief Financial Officer Marty Chavez told analysts on a conference call.

Goldman’s commodities unit, for decades the envy of Wall Street, became emblematic of the bank’s trading struggles last year. This year, the recovery of the unit has contributed to a rebound in the overall earnings at the bank, which reported its highest first-half return on equity in nine years.

The bank’s average daily value at risk, or VaR, in commodities -- a measure of how much it could lose on a normal trading day -- rose to $13 million in the second quarter. That’s up from $9 million in the first quarter, and the first quarterly increase in more than a year.

Still, it remains muted by the historical standards of Goldman’s commodities unit, which reported VaR of as much as $51 million in 2008, and even in recent years reported average VaR of around $15 million to $25 million.

While the commodities business was stronger than a year ago, it declined from the previous quarter because of weaker performance in natural gas, Chavez said.

Losses in natural gas and power had been one of the major drivers of Goldman’s poor year in 2017, but then helped deliver a strong first quarter thanks to cold snaps in the U.S. and Europe, Bloomberg reported in May. Goldman made more money in commodities in the first few months of this year than in all of 2017.

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