uploads///_Why is the Performance of Institutional Client Services Division Deteriorating

Can Goldman Sachs’s Trading Activity Rebound in 4Q17 and 2018?


Oct. 11 2020, Updated 11:28 a.m. ET

Deteriorating revenues in 3Q17

Goldman Sachs’s (GS) Institutional Client Services are comprised of FICC (fixed income, currency, and commodities) and equities. Net revenues were $3.1 billion in 3Q17, a 2% rise from 2Q17.

FICC client execution net revenues were $1.5 billion in 3Q17, a ~25% rise from 2Q17. During the first nine months of 2017, challenging market-making conditions, low levels of volatility, and low client activity continued to negatively affect fixed income, currency, and commodity products. However, tighter spreads were positive for mortgages. The price of crude oil rose 12% in 3Q17, while natural gas remained unchanged.

Its equities business had net revenues of $1.7 billion, a 12% fall sequentially. Below are the services included in its equities business along with revenue for 3Q17:

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  • Equities client execution was $0.58 billion, a 15% fall compared to 2Q17. Limited opportunity set in derivatives and low volatility dragged down the results.
  • Commissions and fees were $0.68 billion, an 11% fall compared to 2Q17. US volumes decreased industry-wide, heading toward a fall. Commissions and fees contributed ~42.5% of revenues. Pre-tax earnings for this segment were $0.78 billion.
  • Securities services revenue was $0.40 billion, a 9% fall sequentially, reflecting second-quarter seasonality.

Average daily VaR (value at risk) in 3Q17 was $47 million, a decline of $51 million from 2Q17, driven by a lower commodity price risk.

Institutional clients

Goldman Sachs (GS) serves clients in trading, financing, and managing portfolio risks. The company is involved in market making and facilitates transactions for clients in asset classes such as equity, fixed-income, currency, and commodity products.

Major competitors include Morgan Stanley (MS), Citigroup (C), and Bank of America (BAC), which together form 19% of the Financial Select Sector SPDR ETF (XLF).


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