Goldman Traders Score $2 Billion in Commodities’ Comeback Year
(Bloomberg) -- Goldman Sachs Group Inc.’s commodities traders doubled their revenue haul in 2020 -- another sign that Wall Street desks managed to print profits into the year’s finale, even as market mayhem subsided.
Goldman’s business generated more than $2 billion in revenue for its best annual showing in about a decade, according to people with knowledge of the matter. That was a much needed redemption: The unit’s prowess once earned the bank the nickname “Wall Street Refiner,” but a prolonged slump in recent years was starting to raise doubts about the group’s future.
The strong finish also bodes well for rivals ahead of earnings reports that will cap one of the most lucrative trading environments in banking history. Already, Jefferies Financial Group Inc., a bellwether for Wall Street, disclosed a 67% jump in net revenue for its fiscal year ending in November, raising the prospects of similar performances elsewhere.
“Last year, amid unprecedented volatility, we stood by our clients, making markets and providing liquidity, financing and risk-management solutions,” Goldman spokeswoman Maeve DuVally said in a statement.
Investment money is flooding back into commodities after years in the doldrums. Goldman’s analysts have cheered on the inflows, predicting a new commodity bull market to rival the China-driven boom of the 2000s and the oil-price spikes of the 1970s.
The major share of the gains came from oil, which delivered stellar profits for traders on Wall Street and beyond in 2020. Crude first dipped into negative prices and back, and then staged a 35% rally in the last two months of the year.
Collectively, investment banks set to report earnings in coming weeks probably generated the most from commodities in a decade. Trading houses such as Trafigura Group and Mercuria Energy Group Ltd. already have posted record profits. Hedge funds have enjoyed a strong run, too, with oil specialist Pierre Andurand’s main fund gaining 68.6% over the year and Ken Griffin’s Citadel making more than $1 billion from commodities.
Goldman’s business had exceeded $1 billion in revenue through the first five months. But the additional windfall in the back half of the year defied some executives’ expectations.
Disruptions wrought by the pandemic opened up opportunities beyond oil. For instance, in the gold market, fears over shutdowns of flights caused an unusual dislocation in prices between the two main hubs of London and New York, creating arbitrage opportunities.
Goldman doesn’t publicly break out the results of its commodities division. The $2 billion revenue figure may not include some costs such as brokerage expenses, the people said. The firm’s global commodities-trading business last reached that mark in 2011, according to a U.S. Senate report on banks’ involvement in commodity markets and estimates compiled by Bloomberg.
Still, the 2020 haul is dwarfed by the last commodity boom, when Goldman averaged more than $3 billion a year in annual revenue for the unit between 2006 and 2009. And while in the past Goldman was the clear leader among banks in commodities, it’s now regularly challenged by rivals for the top spot.
©2021 Bloomberg L.P.