Goldman Sachs’s $100 Million Trading Days Hit Record (Update1)
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By Christine Harper

May 6 (Bloomberg) -- Goldman Sachs Group Inc. reaped more than $100 million in trading revenue on a record 34 separate days during the first three months of 2009, up from the previous peak of 28 in last year’s first quarter.

For December, there were 10 trading paydays bigger than $100 million, the New York-based firm said today in a filing with the U.S. Securities and Exchange Commission. The first- quarter number was almost double the total for all of 2005.

Goldman Sachs, which took $10 billion from the U.S. Treasury’s bank-rescue program in October, reported a record $6.56 billion in revenue from trading fixed-income, currencies and commodities in the first quarter. David Viniar, the company’s chief financial officer, said on April 14 that the trading success was due to “favorable competitive dynamics,” wider margins and higher volatility.

“It was a good trading quarter,” said Brad Hintz, an analyst at Sanford C. Bernstein & Co. who rates Goldman Sachs “market perform.” “Their revenue return on trading assets was very, very high because bid-offer spreads were very high.”

Goldman Sachs lost money on eight trading days in the first quarter and six in December, the filing showed. The December period included a single day in which the firm lost $859 million, reflecting an $850 million writedown of bridge and bank loans related to LyondellBasell Industries AF SCA, which filed for bankruptcy protection on April 24.

Previous Years

The firm had 90 days in which traders made more than $100 million in fiscal 2008, compared with 88 in 2007. In fiscal 2006, the figure was 49 days, up from 18 in 2005 and 14 in 2004.

Goldman Sachs’s trading results reflected the firm’s willingness to take on more risk during the period. Value-at- risk, an estimate of how much the firm could lose in any given day, surged to an average of $240 million in the first quarter from $157 million in the first quarter of 2008. Most of the increase came from bets on interest rates, the company said.

“The increase in interest rates was primarily due to higher levels of exposure and volatility, and wider credit spreads,” Goldman Sachs said in the filing.

The bank’s trading revenue per dollar of value-at-risk was “not unreasonable,” said Bernstein’s Hintz.

“It only brought it back to the mean that they had historically run at,” he said. “The risks they were taking didn’t imply they were doing a Hail Mary pass,” Hintz said, referring to a high-risk play made late in a football game.

Net Interest Income

Trading and principal investments accounted for 61 percent of the bank’s revenue in the first quarter of 2009, up from 59 percent in the first quarter of 2008. Net interest income, the difference between the interest the firm pays and what it charges, doubled from the first quarter of 2008 as the company’s interest expense dropped 76 percent, the filing showed.

Banks such as Goldman Sachs are benefiting from lower borrowing costs after the Federal Deposit Insurance Corp. in October started guaranteeing bank debt issues that mature within three years. Goldman Sachs has issued about $22 billion of debt that’s guaranteed by the FDIC, according to data compiled by Bloomberg.

Today’s filing showed the weighted average interest rate paid by Goldman Sachs on its unsecured short-term borrowings dropped to 2.14 percent in March from 3.37 percent in November.

To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net.

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