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Screenshot of a breaking news alert e-mail from Q2 2017
Big banks can get it wrong too, low institutional volumes might be a reason
The Wall Street Journal and Reuters are reporting in two separate articles that declining revenues for Goldman Sachs in the third quarter were in part due to FX trading decisions gone bad. According to an article in Reuters the investment banking giant’s foreign exchange trading division has suffered badly during the quarter costing the firm more than $1 billion.
In a separate article the Wall Street Journal reports that the FX options desk posted a loss because of a bet on the Japanese Yen against the US dollar that has gone bad. While it is not providing details of the size of the trade it might have been a substantial one.
The article goes on to inform us, that during a conference call last month Goldman’s finance chief Harvey Schwartz has stated that the losses were in part due to “difficulty managing inventory”, which basically means that the bank might have lost some money due to badly managing its risk exposure as a market maker for its clients.
We can only speculate whether the widely expected Federal Reserve “taper” in September was the issue that turned the company’s fortunes in a field where it normally excels. After all the third quarter passed under the discussion whether there will be one or not, add to that political uncertainty and the Syrian war debacle and you get an uncertain trading environment that can produce any surprise.
After the events, as we have already reported, FX institutional volumes have been dropping substantially across the industry and trading opportunities minimized, hence a big loss could be harder to counterbalance on Goldman’s part in the run up to the political impasse in Washington.