Goldman’s commodities trading desk dodged the ax and strikes billions again

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(Bloomberg) – It was once one of the strongest engines of Goldman Sachs Group Inc.’s business powerhouse before it seemed to be weakening with each passing year. In 2017, the bank’s commodities office was failing to generate $300 million – less than a tenth at its peak – and senior executives were worried about its future.

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

Goldman’s energy traders, in particular, thrived on the wild ride: profiting in the months after the outbreaks began as oil prices first turned negative, then benefiting again from grid outages. electricity 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, pay for some of the company’s top performers will top $30 million, the people said. That’s more than the company has given its CEO in recent years.

Goldman did not disclose revenues from the commodities office. The company is due to release its fourth-quarter results on Tuesday and generally does not detail the unit’s earnings, which are rolled into the broader fixed-income segment.

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

After years of unease, commodities are once again attracting interest and investment on Wall Street as prices rise. Goldman in-house analyst Jeff Currie – widely followed in energy markets – recently suggested that dislocations around the world could create a decade-long “supercycle”. He rose to fame after predicting the China-led 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 prominent role in Goldman’s ups and downs for decades, ever since a commodity broker – J. Aron & Co. – asked the bank for help. investment to sell in the early 1980s. Goldman, seeing an opportunity for expansion, offered to be the buyer. The transaction paved the way for a group of commodity executives who would eventually lead trading, investment management, human resources and even the entire company – with Lloyd Blankfein and Gary Cohn becoming CEO and chairman.

It was Blankfein’s support for the commodities sector that helped save him from being dismantled during the industry’s long slump over the past decade. As Blankfein prepared to hand over his CEO title in 2018, he unsuccessfully tried to persuade Isabelle Ealet to delay his exit as co-head of trading until the Commodities Office, which she ran previously or out of harm’s way, a Goldman executive told the Times.

Other veterans of the group also headed out. When his two co-chiefs left within months, Emerson, 45, suddenly found himself holding the top seat alone in 2019, just before the market turned.

The Argentine-born Briton and polo player is described by colleagues as protective of his staff but also unerringly commercial – a compliment in some Wall Street circles that emphasizes profits over niceties. In internal discussions, he is known for relentlessly arguing his views and sometimes confronting 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 traveling companions.

Emerson rose through the oil trade during an era of spectacular profits in the 2000s, a time when the Goldman name commanded unquestioned respect in those markets.

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

A few months later, Goldman chairman John Waldron tried to reassure the commodities group that the company was not getting 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 tumult. Part of the idea was that if activity picked up, Goldman might be better positioned than its rivals to capitalize.

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

In 2019, the office was on more stable footing. And then came Covid-19. The bank has thrived amid swings in oil and precious metals. Last year it navigated the gas and power trade turmoil, taking advantage of price spikes in Europe that hurt many big energy consumers.

Across Wall Street, major U.S. investment banks have seen their profits soar over the past two years, driven by a flurry 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 solidified itself as an integral part of Goldman’s trading arm.

It’s quite a shift from just a few years ago, when Emerson was under pressure to turn the company around. He considered various possibilities for the office, including a proposal to significantly reduce it – a scenario in which he would have chosen to leave.

©2022 Bloomberg LP

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