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Goldman (GS) Bags $1B in Commodities Revenues From Oil Slump
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The Goldman Sachs Group’s (GS - Free Report) commodities unit pocketed more than $1 billion as revenues through May this year despite such turbulent times, per a Bloomberg article.
Sources familiar with the matter told Bloomberg that though other commodities, including natural gas, power and precious metals contributed,most of the support came from oil trading.
Since the breakout of the novel coronavirus in China, oil prices have been sliding. The outbreak, which led to travel restrictions and lockdown in most countries, impacted the demand for fuel. Further, prices tumbled as Saudi Arabia initiated a price war and boosted its oil production significantly in retaliation to Russia’s refusal to lower its crude production. Hence, oil witnessed one of the most vicious selloffs in history, with oil prices trading in the low 20s in March.
Qin Xiao, who oversees Goldman’s trading business in Singapore, anticipated a fall in oil prices and therefore positioned the company short on oil. Thus, he was able to reap gains from the position when the pandemic started to spread in Asia and the prices fell by about two-thirds in the first three months of 2020.
At the same time, Anthony Dewell, London-based trader, conducted successful trades, anticipating a fall in the West Texas Intermediate futures market in April as storage tanks filled and prices moved toward zero.
The commodities trading business was once Goldman’s most active unit and a significant contributor of profits until tighter regulation curbed the risks it could take on proprietary bets. However, with the market volatility returning on the coronavirus scare, the company’s first-quarter results were aided by strong underwriting business, and higher Fixed Income, Currency and Commodities Client Execution revenues.
Also, Reuters reported that Goldman’s Marcus has been attracting so many applications for new accounts that the company had to temporarily stop accepting them.
"We've really seen our growth accelerate under lockdown as people hold off on discretionary spending and take time to reorganise their finances and get the best deal for their money," the article quoted Des McDaid, leader of Marcus U.K.'s operations.
Our Take
While Goldman is on track to remodel its business into a more profitable one, it continues to face probes and queries from several federal agencies, and a few foreign governments for businesses conducted during the pre-crisis period. These are likely to keep costs elevated.
Shares of this Zacks Rank #3 (Hold) company have lost 5.6% over the past year compared with the industry’s decline of 9%.
Franklin Resources, Inc. (BEN - Free Report) earnings estimates for the current year have been revised 1% upward over the past 60 days. Over the past six months, this Zacks #1 Ranked company’s shares have declined 8.8%.
Earnings estimates for First Republic Bank have moved 17.1% north over the past 60 days for the ongoing year. The company’s shares have rallied 2.8% over the past six months. It carries a Zacks Rank of 2 at present.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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Goldman (GS) Bags $1B in Commodities Revenues From Oil Slump
The Goldman Sachs Group’s (GS - Free Report) commodities unit pocketed more than $1 billion as revenues through May this year despite such turbulent times, per a Bloomberg article.
Sources familiar with the matter told Bloomberg that though other commodities, including natural gas, power and precious metals contributed,most of the support came from oil trading.
Since the breakout of the novel coronavirus in China, oil prices have been sliding. The outbreak, which led to travel restrictions and lockdown in most countries, impacted the demand for fuel. Further, prices tumbled as Saudi Arabia initiated a price war and boosted its oil production significantly in retaliation to Russia’s refusal to lower its crude production. Hence, oil witnessed one of the most vicious selloffs in history, with oil prices trading in the low 20s in March.
Qin Xiao, who oversees Goldman’s trading business in Singapore, anticipated a fall in oil prices and therefore positioned the company short on oil. Thus, he was able to reap gains from the position when the pandemic started to spread in Asia and the prices fell by about two-thirds in the first three months of 2020.
At the same time, Anthony Dewell, London-based trader, conducted successful trades, anticipating a fall in the West Texas Intermediate futures market in April as storage tanks filled and prices moved toward zero.
The commodities trading business was once Goldman’s most active unit and a significant contributor of profits until tighter regulation curbed the risks it could take on proprietary bets. However, with the market volatility returning on the coronavirus scare, the company’s first-quarter results were aided by strong underwriting business, and higher Fixed Income, Currency and Commodities Client Execution revenues.
Also, Reuters reported that Goldman’s Marcus has been attracting so many applications for new accounts that the company had to temporarily stop accepting them.
"We've really seen our growth accelerate under lockdown as people hold off on discretionary spending and take time to reorganise their finances and get the best deal for their money," the article quoted Des McDaid, leader of Marcus U.K.'s operations.
Our Take
While Goldman is on track to remodel its business into a more profitable one, it continues to face probes and queries from several federal agencies, and a few foreign governments for businesses conducted during the pre-crisis period. These are likely to keep costs elevated.
Shares of this Zacks Rank #3 (Hold) company have lost 5.6% over the past year compared with the industry’s decline of 9%.
Key Picks
Bank of Hawaii Corporation’s (BOH - Free Report) 2020 earnings estimates have been revised 18.2% upward over the past 60 days. This Zacks Rank #2 (Buy) company’s shares have lost 21.2% over the past six months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Franklin Resources, Inc. (BEN - Free Report) earnings estimates for the current year have been revised 1% upward over the past 60 days. Over the past six months, this Zacks #1 Ranked company’s shares have declined 8.8%.
Earnings estimates for First Republic Bank have moved 17.1% north over the past 60 days for the ongoing year. The company’s shares have rallied 2.8% over the past six months. It carries a Zacks Rank of 2 at present.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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