Goldman Sachs, once one of the most active banks in commodities trading, has cut 10 roles to further downsize its global commodities trading division amid rising costs and shrinking profits. Two sources familiar with the matter said on Thursday the cuts were announced this week following an annual review of headcount across all divisions and regions. Goldman Sachs declined to comment.
The commodities trading business was once one of Goldman's largest and most active units and a significant driver of profits earned by the Wall Street bank until tighter regulation curbed the risks it could take on proprietary bets. Cuts were accelerated as competition with trading houses and oil majors increased and as profits shrank.
Banks don't disclose their commodities revenues but financial analytics firm Coalition estimates the top 12 banks generated commodities trading revenue of less than $4 billion in 2018, down from nearly $16 billion in 2008. Fixed income, currencies and commodities revenues across all major investment banks dropped to their lowest levels seen since the financial crisis in the final quarter of 2018, the Coalition data showed, with oil trading suffering significant declines across the year.
Goldman launched a months-long review of the commodities division to evaluate its profitability and the use of capital. The review began under Goldman's previous chief executive Lloyd Blankfein, who himself was once a commodity trader and was seen as a big supporter of the division, but was completed under the new chief David Solomon, who has never traded commodities.
The review showed the business was using too much capital for too little profit, the Wall Street Journal reported in February, citing people familiar with the matter. The WSJ said Goldman was discussing pulling back in physical trading of iron ore, platinum and other metals.
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