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Goldman Sachs’s Trading Department and Its Equities Segment

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Fall in revenues

Goldman Sachs’s (GS) equity net revenues were $1.4 billion in 4Q17, an 18% fall sequentially. Compared to 3Q17, ECE (equities client execution) declined due to lower results in both cash and derivatives. However, the fall was partially offset by higher commissions and fees and a slight increase in security services. The quarterly performance will be affected due to the capital commitment required to support the client franchise.

For 2017, net revenues of $6.6 billion were 4% lower year-over-year. Even though the market had favorable trends for equity prices, cash volumes in the US market fell in the double digits, and equity market volatility fell to new lows.

Commissions and fees were $2.9 billion for 2017, a 5% fall. Securities services generated stable revenues of $1.6 billion.

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Client mix

Goldman Sachs’s client mix consists of 42% hedge funds, 29% asset managers, 15% banks and brokers, and 4% corporations. The remaining 10% is classified as others.

There has been a ~30% increase in assets under management for quantitative strategies, from ~$750 billion in 2012 to $1 trillion in 2016.

Value at risk

Due to exposures associated with its equities franchise, Goldman Sachs’s average daily VaR (value at risk) in 4Q17 was $54 million, compared to $47 million in 3Q17.

Trading was a major profit segment for Goldman Sachs during the 2007–2009 financial crisis. However, these profits vanished due to increased competition, new and tighter regulations, and lethargic markets.

Estimated revenue in 2018 for GS and its peers (IYF) are as follows:

  • Goldman Sachs (GS): $33.2 billion
  • JPMorgan Chase (JPM): $108.4 billion
  • Citigroup (C): $74 billion
  • Bank of America (BAC): $92.4 billion
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