Goldman Made Between $11 And $16 Billion In 2009 Trading CDS And Other Derivatives

Tyler Durden's picture

As part of its most recent FCIC grilling, David Viniar left the political theater a month ago with a homework assignment to disclose all of the firm's derivative profits, as well as provide granular detail on its derivative trades. Today, courtesy of a memo from Goldman intercepted by the WSJ, we now know that derivative trades accounted for between 25% and 35% of 2009 revenue. "Based on the percentages provided by Goldman, such businesses generated
$11.3 billion to $15.9 billion of the company's $45.17 billion in net
revenue for 2009." As a reminder, the Office of the Currency Comptroller noted (table 2) Goldman had $49 trillion in total derivatives as of Q1. However, the bulk of the profit comes from trading credit derivatives where Goldman, post the assimilation of Bear and Lehman into the collective, is now virtually an undisputed trading powerhouse, and due to the OTC nature of the product allowing firms to set bids and asks as is, as long as liquidity in cash products continues to decline, Goldman will continue to dominate not only the most profitable vertical of derivative trading, but CDS will continue to generate roughly a third of the firm's profits, for both flow and prop. Post the recent shifts in prop trading across Wall Street, it will be interesting to see what the impact on the top line will be now that allegedly CDS trading at Goldman will be exclusively on a flow basis. The irony is that the Volcker Rule seems to focus almost exclusively on equity trading, while the bulk of the firm's questionable flow-prop "Chinese wall" transgressions may occur precisely in derivative trading, and should be the one area under much more scrutiny by regulators and legislators.

More from the WSJ:

Goldman's analysis reflects all derivatives products, ranging from credit to equity to interest rates, traded on and off exchanges, said the person familiar with the situation.

Goldman said it doesn't conduct its businesses in a way that delineates revenue from derivatives transactions or other types of trading, this person said.

For example, Goldman cited credit-trading desks that are separated by industry group, adding that traders are indifferent to whether they are selling clients a bond or a credit derivative. As a result, separating the revenue among the two product lines is useless, Goldman told the FCIC. The firm also said its technology systems firm-wide don't single out derivatives transactions.

The analysis was based on a "best guess" of the main type of trading on each Goldman trading desk at the firm, said the person familiar with the matter. The numbers vary widely, with the company's fixed-income unit getting much more of its revenue from derivatives than investment banking, where no revenue is tied to derivatives.

Keep in mind that Goldman's critical Trading and Principle revenue stream declined notably in Q2 as posted previously, which is a function of declining trade volumes, not so much in equity but across fixed income as well. Furthermore, following the decline in BofA's record daily trading profitability from perfection to 81%, we are waiting for Goldman's 10-Q with baited breath: we anticipate that Goldman will experience a comparable if not worse decline in Q2 trading prowess. In light of the firm's legal troubles in Q2, and its record low public perception, how much of this may have been on purpose is a different question.


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doomandbloom's picture

could someone intercept info from JP Morgan pls?

King_of_simpletons's picture

Hey atleast he convinced a bunch of wealthy folks to give away 50% of their wealth to charity.... in paper .... but who is really checking if they will do it.... The peasants can eat cake.

RossInvestor's picture

GS must think the FCIC fell off the proverbial pumpkin truck to believe that whopper of a lie about its accounting system!!  I guess we are to believe an ulta-sophisticated firm such as GS uses Quick Book Pro and their CFO and their Accounting Department are complete morons.

I am a Man I am Forty's picture

my thoughts eggggsssactly!

"wow, not sure how we made those billions of dollars, it's a mystery, I know we can develop HFT programs that can game the market and flash quotes in milliseconds, but damn, don't have a clue where we are making all this money."

sell crazy someplace else


Fritz's picture

Meet the new Boss - same as the old boss.

GS will continue to siphon money from the system. Its only a question of how.



MountainHawk's picture

All hail Lord Goldman!

Hansel's picture

$16B from $49T?!  0.03% of notional outstanding was profit?  It wouldn't take much of anything to blow that book up, it seems.  One little baby, mildly grey swan and boom.  Of course, I'm sure you can hedge $49T pretty easy so it nets out... right.

Getagrip's picture

How much will their stock, earnings, and cash hoard be worth with the FRN at zero? Probabley a Gazillion!! Problem is, you won't be able to even buy toilet paper with it.

ZackLo's picture

when the shit hits the fan I'm going to be making rolls of hamiltons, and using them as toilet paper.....if we still have that denomination....I wonder whos face they'll put on the 10,000,000$ FRN. I vote GREENspan. he sure lived up to his name...

TraderTimm's picture

In the novel "Snowcrash" it was trillion-dollar Ed Meeses. Maybe Quadrillion "Bennies" would fit better.


Clycntct's picture

Thanks for that link +++

Man does that ruin my Saturday night. Talk about pissed.

I got steam coming out my of my ears.

Oswald Spengler's picture

Jews making money. Whoda thunkit?

carbonmutant's picture

"The irony is that the Volcker Rule seems to focus almost exclusively on equity trading, while the bulk of the firm's questionable flow-prop "Chinese wall" transgressions may occur precisely in derivative trading..."

I'm not sure irony is the right word... considering the level of lobbying that went into that rule.

Remington IV's picture

it's a conspiracy