Goldman Sachs Group Inc. suffered the worst commodities performance in its history as a public company as a drop of about 75 percent in net revenues in 2017 put it behind long-time rival Morgan Stanley, according to people familiar with the matter.
For decades Wall Street’s dominant commodities trader, Goldman’s performance was dragged down by losses in gas and power. The slump means the bank’s storied natural resources unit fell behind competitors such as Morgan Stanley, where net revenues in the sector rose by about a fifth last year, one of the people said -- a reversal of fortunes for the two banks known as the "Wall Street refiners.”
Goldman’s commodities unit has been under scrutiny both within the bank and among investors since it revealed its second-quarter performance was the worst in its post-IPO history. That triggered an informal review of the unit and several high-profile departures, including global commodities head Gregory Agran.
The bank’s commodities earnings in the final three months of 2017 were better than the previous two quarters as losing natural gas trades were closed. Nonetheless, performance at the unit remained lackluster as it cut back risk-taking.
Goldman is due to report fourth-quarter results on Wednesday, while Morgan Stanley follows on Thursday. Both banks declined to comment.
The bank -- which does not report commodities earnings separately from its fixed income, currencies and commodities division -- had net revenues from the unit of a little under $1.1 billion in 2016, Bloomberg has reported previously. It was ranked No. 1 among global investment banks in the sector, according to Coalition Development Ltd., a London-based analytics company.
A 75 percent drop suggests Goldman’s net revenues in commodities last year were less than half those of Morgan Stanley, where a strong performance in gas and power helped spur an increase in commodities net revenues to more than $600 million, according to one of the people.
While the contribution of commodities to the banks’ overall results these days is small, the asset class was once a significant driver of profits.
In its heyday in the mid-2000s, Goldman enjoyed net revenues that peaked at $3.4 billion in 2009 thanks to volatile markets, rising interest from investors and little competition from other banks.
Many of the bank’s top executives -- including Chief Executive Officer Lloyd Blankfein -- cut their teeth in the commodities division.