Goldman’s commodities trading desk dodged ax and hits billions again

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(Bloomberg) – It was once one of the most powerful engines of Goldman Sachs Group Inc.’s market power before it seemed to be weakening year by year. In 2017, the bank’s commodities office was failing to generate $ 300 million – less than a tenth of its peak – and senior executives worried about its future.

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But in a comeback that highlights Wall Street’s change in fortunes amid the pandemic, the unit’s revenue topped $ 2.2 billion in the final months of 2021 – exceeding a windfall it generated in 2020 for its best performance in a decade. This adds credence to the notion of awakening.

Goldman’s energy traders, in particular, have thrived on a wild ride: capitalizing on the months after the epidemics started when oil prices turned negative for the first time in history, then once again profiting from the blackouts in the electricity grid in the United States and frantic movements in European markets at the end of last year.

Ed Emerson, the bureau chief who remained as peers and supporting bosses before his turnaround, will be among Goldman’s highest-paid partners this bonus season, people familiar with the matter have said. In a year of record profits, the salaries of some of the company’s top performers will exceed $ 30 million, the people said. That’s more than what the company has given its CEO in recent years.

Goldman did not disclose the raw materials bureau’s earnings. The company is expected to release its fourth quarter results on Tuesday and generally does not detail the unit’s earnings, which are included in the larger fixed income segment.

A spokesperson for the company declined to comment on the numbers and internal deliberations described in this story by those involved in the discussions.

After years of unrest, commodities are once again attracting interest and investment on Wall Street as prices skyrocket. Goldman inside analyst Jeff Currie – widely followed in energy markets – recently suggested that upheaval around the world could create a “supercycle” that would last for a decade. He rose to fame after predicting the China-induced boom of the 2000s and the surge in oil prices above $ 100 a barrel during that decade.

Read more: Goldman “Extremely Bullish” on Commodities, Sees Long Supercycle

The commodities unit has played a leading role in Goldman’s ups and downs for decades, ever since a broker in this business – J. Aron & Co. – enlisted the help of Goldman’s bank. investment to sell in the early 1980s. Goldman, spotting an opportunity for expansion, offered to be the buyer. The transaction paved the way for a group of commodities executives who would end up leading commerce, investment management, human resources and even the entire company – Lloyd Blankfein and Gary Cohn becoming CEO and chairman.

It was Blankfein’s support for the raw materials sector that kept its dismantling during the industry’s long slump of the past decade. As Blankfein prepared to relinquish her CEO title in 2018, he tried unsuccessfully to persuade Isabelle Ealet to delay her exit as co-head of trading until the commodities office, which she headed. previously, either out of danger, a Goldman executive said at the time.

Other veterans of the group have also headed for the exits. When his two co-chefs left in a matter of months, Emerson, 45, suddenly found himself alone in the front row in 2019, just before the market tour.

The Argentinian-born Briton and polo player is described by his colleagues as a protector of his staff as well as an infallible businesswoman – a compliment in some Wall Street circles that emphasizes profits rather than niceties. In internal discussions, he is known to relentlessly argue his views and sometimes clash with bosses.

He is also known for his quirky humor. While on top of the unit, he took a vacation in Costa Rica and threw fake snakes around the house in the middle of the night to scare his fellow travelers.

Emerson rose to the oil business during a time of spectacular profit in the 2000s, a time when the Goldman name commanded undisputed respect in these markets.

For investment bankers, commodity trading can seem scary – too volatile and potentially risky. When seasoned negotiator David Solomon took over from Blankfein in 2018, the team of colleagues he raised sweated over the capital allocated to commodities, the paltry income he generated, and the miserable return on equity that could upset shareholders.

Months later, Goldman chairman John Waldron tried to reassure the commodities group that the company would not go out of business. Emerson and senior executives campaigned to keep the core of its operations intact, arguing that its best years came in times of uproar. Part of the idea was that if activity picked up, Goldman might be in a better position than its rivals to capitalize.

In the end, the ax never tipped over. Instead, the company found ways to cut costs. He was also looking to embrace electronization more – a service dubbed e-Aron in an ode to the group’s roots.

In 2019, the office was on more stable bases. And then came the Covid-19. The bank flourished amid fluctuations in oil and precious metals. Last year it weathered the turmoil in the gas and electricity trade, profiting from price spikes in Europe that hurt many large energy consumers.

All over Wall Street, the major US investment banks have seen their profits soar over the past two years, spurred on by a wave of investor and corporate deals. Goldman shares rose 45% last year, their best annual performance since their post-crisis rebound in 2009.

Even as markets normalize and commodity revenues decline again, the team has once again cemented itself as an integral part of Goldman’s business arm.

This is a turning point from just a few years ago, when Emerson was under pressure to turn the business around. He looked at various possibilities for the office, including a proposal to dramatically reduce it – a scenario in which he would have chosen to leave.

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