If you're a trader who's thinking of getting a job at Goldman Sachs, you might be lured by the firm's reputation for taking intelligent risk, and with good reason. - Goldman's traders made gains in excess of $100m on 12 days in 2018, while JPMorgan's barely made $100m once last year. Under David Solomon, however, Goldman's attitude to risk may be changing.
Last week, Goldman Sachs released its 10Q filing for the second quarter, as did other U.S. banks like Morgan Stanley, JPMorgan and Citi. They reveal that Goldman's pattern of trading gains and losses for Q2 looks a lot more like Morgan Stanley's than like the Goldman Sachs of the past.
In the second quarter of 2018, Goldman Sachs had zero days when it made over $100m of trading gains and far fewer days than previously when it made more than $50m. As the chart below shows, in the three months to June 2019 Goldman's daily trading gains were instead grouped in the $25-$50m category. And the same applies to the first half of 2019 as a whole.
Goldman Sachs' daily trading gains
Source: Goldman Sachs
So, what's changed? Well, the CEO obviously - Goldman is now led by an investment banker rather than a trader. There's also the firm's new focus on low touch electronic trading rather than higher risk over-the-counter trading, particularly in fixed income. Plus there are market conditions, which Goldman said were categorized by "low levels of volatility and low client activity," in the second quarter.
It's possible that Goldman's traders will resume their risk-taking ways and start making $100m+ daily gains again soon. Then again, this could be the start of a whole new era. At Morgan Stanley, traders only had one day of gains in excess of $100m in the second quarter of 2018 and no days at all of $100m+ gains in Q2 2019. Instead, most of Morgan Stanley's daily trading gains in both years fell into the $25m to $50m category. This seems to be the level Goldman is targeting too. The firm might want to hire a few more pedestrian traders from Morgan Stanley to help it along.
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