By Lauren Tara LaCapra
March 1 Goldman Sachs Group Inc reduced
its risk-taking for a third straight year, with potential losses
from trading positions dropping to the lowest level in seven
years, reflecting a more cautious stance towards markets.
The Wall Street bank's average daily value at risk last year
was $86 million, down 24 percent from the preceding year,
according to a filing with the U.S. Securities and Exchange
Commission on Friday.
The measure shows how much money Goldman estimates it could
lose on an average day, with 95 percent confidence.
Goldman was not alone in reporting lower risk-taking. On
average, its four biggest Wall Street rivals - Morgan Stanley
and the trading businesses of JPMorgan Chase & Co
, Bank of America Corp and Citigroup Inc -
reported an average decline of 21 percent in comparable average
Lower risk-taking shows that these firms are taking to heart
at least some of the lessons from the financial crisis and its
aftermath. But it is unclear how much of the reduction in
risk-taking comes from market conditions and exposure, and how
much of it comes from changes in models to calculate risk.
Regulators, for example, approved a new model for Morgan
Stanley last year that increased emphasis on short-term
volatility. As a result, losses that occurred in 2007 and 2008
had less of an impact on value-at-risk. Its figures are also now
more comparable to competitors, Morgan Stanley said in a filing
Goldman's risk-taking in 2012 was at the lowest level since
2005, when it reported an average daily value-at-risk of $70
million. It was less than half the $218 million of average daily
value-at-risk Goldman reported at its 2009 peak.
Declines in risk-taking were broad across Goldman's
positions in interest rates, equities, currencies and
commodities. Goldman attributed the changes to lower volatility
and reduced market exposure.
Goldman said its value-at-risk model is "regularly reviewed
and enhanced in order to incorporate changes in the composition
of inventory positions, as well as variations in market
For Goldman, less risk-taking also meant fewer days with big
losses or gains.
Goldman lost money on 16 trading days in 2012, compared with
54 days in 2011. It did not lose more than $75 million on a
single day, whereas the previous year it lost at least $100
million on four days. Likewise, the bank earned at least $100
million on 41 days in 2012, compared with 54 days in 2011.
Overall, Goldman's trading and investing businesses were
more profitable last year than in 2011.
Goldman reported $5.6 billion in pretax earnings from its
client trading business and $3.2 billion in pretax earnings from
its investing and lending division, which puts Goldman's own
money to work. In 2011, those businesses reported earnings of
$4.4 billion and a loss of $531 million, respectively.
In a separate filing, Citigroup reported a new 2011
value-at-risk of $176 million in a regulatory filing on Friday.
The figure is 17 percent less than the original $213 million
figure it reported a year ago.
Citigroup said the change was partly due to the fact that
its three-year volatility time frame no longer includes market
swings from 2008 and 2009.