Goldman Sachs’ Trading Bloodbath Looks to be Coming from JPMorgan and Citi

Source: Office of the Comptroller of the Currency (OCC)

Source: Office of the Comptroller of the Currency (OCC)

By Pam Martens and Russ Martens: March 20, 2019 ~

Last Thursday, Kevin Dugan at the New York Post reported that Goldman Sachs was laying off employees, “focusing on traders and salespeople in the equities and credit divisions, according to two people familiar with the layoffs.”

Buried deep in the bowels of the Office of the Comptroller of the Currency (OCC), the federal regulator of national banks, is a report that helps to explain the trading pain being felt at Goldman Sachs. (See Editor’s Update below.)

According to the OCC report for the third quarter of 2018, JPMorgan Chase Bank N.A. reported $2.7 billion in trading revenues from cash instruments and derivatives; Citibank N.A. reported $2 billion; Bank of America N.A reported $957 million while Goldman Sachs Bank USA reported a minuscule $266 million.

Equally noteworthy, Goldman Sachs Bank USA was the only one of the four banks to report trading losses on its cash instruments and derivatives. The OCC says it lost $173 million trading interest rate positions and $37 million from credit positions.

These figures represent what was going on in the federally insured commercial banks at each of the four financial institutions, not the consolidated results of the respective Bank Holding Companies which include the investment banks of the four powerhouse Wall Street firms.

The report does, however, provide a clue as to what extent JPMorgan Chase and Citibank (the commercial bank owned by Citigroup) are eating Goldman Sachs’ lunch. It reports that consolidated bank holding company trading revenue in the third quarter was $13.7 billion, 7.9 percent lower than in the second quarter. If you add JPMorgan Chase’s bank trading revenues of $2.7 billion together with Citibank’s $2 billion, that’s $4.7 billion or 34 percent of all trading revenue at bank holding companies. As of the third quarter of last year, there were 135 bank holding companies with greater than $10 billion in assets. That just two commercial banks were responsible for 34 percent of all bank holding company trading revenues puts the concept of Wall Street Davids and Goliaths into perspective.

If you remove the bank holding companies from the equation and look at just the trading revenues of the 5,385 federally insured banks and savings associations in the U.S., which reported a total of $7.1 billion in trading revenues in the third quarter, then JPMorgan Chase and Citibank represent a stunning 67 percent or two-thirds of all trading revenues.

Let that sink in for a moment: two banks out of 5,385 represent 67 percent of all trading revenues in the United States.

Now let this sink in: one of those banks, JPMorgan Chase has pleaded guilty in the past five years to three criminal felony counts (two related to Bernie Madoff’s Ponzi scheme and one for its role in rigging foreign currency trading); the other, Citigroup’s Citibank, has pleaded guilty to one criminal felony charge in the foreign currency trading matter. Citigroup is also the bank that received the largest bailout in U.S. history in the midst of and following the 2008 financial crash – which it played a significant role in causing from its off balance sheet trading activities.

The Democrats are now in charge of the House Financial Services Committee and it’s time to stop snooping around the edges of what’s happening on Wall Street and hold meaningful hearings on the systemic and concentrated risks posed by a handful of Wall Street banks that are simply too big to exist in any rational banking system.

Editor’s Update: Goldman Sachs has asked us to add balance to this article by reporting that it had net revenues of $3.1 billion in the third quarter in its institutional client services segment which it says is “essentially fixed income and equity trading.” (See page 2 of Goldman’s third quarter earnings release.) The focus of our article was to highlight the vast amount of Wall Street trading that is taking place inside a handful of Federally-insured depository banks, but we accept the valid criticism from Goldman.

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