Now raising intellectual capital
LONDON, July 22 (Reuters) – Goldman Sachs last week reported record net revenues from trading and principal investments ($10.8 billion) during the three months ending June, with the major contribution coming from the fixed income, currencies and commodities segment ($6.8 billion).
Most commentators ascribe the firm’s stunning performance, and strong results reported by some of its peers to luck (a rising market lifts all boats); brilliance (trading strategies that are just smarter than everyone else); being one of the last men standing (benefiting from the lessening of competition in many of the markets in which Goldman operates); or some combination of all three.
BlackRock chief executive Larry Fink has attributed Wall Street banks’ profits to the fact there are fewer players left and is quoted as saying those remain are “just taking the spread between the bid and ask and they are making luxurious returns”.
While all these factors have played a part, the reality is more prosaic. Like other financial intermediaries with privileged access to cheap funding in the interbank market, and now discount borrowing facilities at the Federal Reserve Bank of New York, Goldman and the other major banks are benefiting from an subsidy in the form of cheap (and guaranteed) funding from the central bank to carry riskier and far more profitable trading positions.