Goldman Sachs cuts commodities exposure in Q3

Top Wall Street investment bank Goldman Sachs appears to be being more cautious on commodities exposure than its main rivals

NEW YORK (Reuters)  - 

Goldman Sachs (GS.N: Quote) cut its commodity trading risks in the third quarter, even as oil hit year highs, a sign that Wall Street's top investment bank was more cautious than some rivals in chasing prices on a weak dollar.

JPMorgan Chase (JPM.N: Quote), the second largest U.S. bank, reported third-quarter results on Thursday that indicated its risk in commodities had gradually risen this year to approach levels last seen before the financial crisis.

But for Goldman, the value at risk, or VaR, for commodities fell 47% from a year ago to $27 million. VaR typically refers to the maximum amount of money a bank is prepared lose in a day trading a particular market.

More importantly for Goldman, its commodities VaR fell 32% from second-quarter levels, even as U.S. crude oil hit a 2009 high of $75 a barrel in the third quarter.

This showed that Goldman -- one of Wall Street's most high-profile crude traders -- was probably less bullish about the prospects in commodities over the last quarter than JPMorgan, a fast-growing competitor in investment banking, analysts said.

"One could easily infer that from the numbers," said Michael Holland, president of Holland & Co in New York. "You could say Goldman are looking at the commodity markets and saying a number of commodities have come a very long way and it's probably time for them to be pulling back."

Crude oil aside, copper, gold, sugar and cocoa have all posted sharp price gains this year -- partly due to signs of economic rebound and largely due to a weak dollar, which has hit 14-month lows. .DXY

"It looks like, for most people, the dollar is just a one-way trade now," Holland said. "Goldman probably feels differently as they have been around for too long, and been too successful in the commodities trade, to know there is anything such as a one-way trade."

Peter Jankovskis, co-chief investment officer at Oakbrooks Investments in Lisle, Illinois, agrees. "Their feeling is perhaps the dollar weakness is near to running its course and, when the dollar strengthens, the prices of commodities are likely to come down."

Goldman's quarterly earnings nearly quadrupled to $3.03 billion, topping analysts expectations.

As per the tradition on Wall Street, it did not break down its commodity earnings. But it did say the asset class, as well as currency trading, contributed less to net revenue than a year ago.

Goldman also made fewer hirings for commodities during the third quarter than other investment banks, according to data gathered this week from employment headhunters.

Citigroup (C.N: Quote), another Wall Street bank that reported quarterly results on Thursday, hired four energy market specialists in the third quarter, compared with two by Goldman.

(Editing by Walter Bagley)

© Thomson Reuters 2009. All rights reserved.

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