Commodities slump in 2017 adds to Goldman Sachss trading pain

Joining the ranks of other big banks suffering from a slump in commodities, Goldman Sachs Group Inc. on Tuesday said it took a hit from what the companys chief financial officer referred to as the worst quarter ever for its commodities business.

Out of the 73 quarters that Goldman Sachs
GS, -2.60%
has been a public company, Chief Financial Officer R. Martin Chavez said the second quarter was the worst quarter for the commodities business, according to a transcript of the companys conference call posted on FactSet.

Goldmans results follow declines in trading businesses reported last week by the companys rivals, J.P. Morgan Chase & Co.
JPM, -0.35%
and Citigroup Inc.
C, +0.09%
as the commodities market overall, pulled back in the wake of strong advances in 2016.

The Bloomberg Commodity Index
BCOM, +0.55%
which tracks 22 commodity futures contracts, fell 3.2% in the second quarter. It lost nearly 6% for the first half of the year, with
SBV7, +0.43%
natural gas
NGQ17, -0.06%
and oil
CLQ7, -0.28%
among the commodities that suffered big losses.

Read: Its been an ugly first half for commodities in 2017

At Goldman Sachs, net revenues in fixed income, currencies and commodities, known as FICC, were 40% lower compared with a year ago, in a quarter marked by low volatility and sluggish activity, the firm said.

One measure of volatility in a commodity, the CBOE Crude Oil Volatility Index
OVX, -2.12%
has been trading far below its 52-week peak at 55.70, closing at 29.96 on Tuesday, according to FactSet data. Similar to the equity-focused volatility gauge, or VIX
VIX, +0.71%
the gauge is a popular way for investors to bet on swings in West Texas Intermediate oil prices 30-days into the future based on options contracts on the United States Oil Fund LP
USO, +0.95%
The oil-volatility index, or OVX, hit a recent low of 24.67 on March 1, and hung around those lows at the start of the second quarter. Lower levels signal that investors are holding low expectations for sharp moves in the oil market.

Chavez described the current placid market environment in one of Goldmans key business lines, as a challenging backdrop for commodities, really challenging on all fronts. Chavez said volatility and client conviction remained low and led to weaker client activity quarter over quarter.

To be sure, Goldman still managed to beat Wall Streets expectations for earnings and revenue. Goldman reported second-quarter net income of $1.83 billion, or $3.95 a share on revenue of $7.89 billion. Analysts had expected earnings-per-share of $3.39, on average, and revenue of $7.52 billion.

FICC client execution net revenues dropped 31% to $1.2 billion in the second quarter.

On Tuesday, shares of Goldman Sachs lost 2.6%.

Read: Stock market pressured as bank shares swathed in red

–Mark DeCambre contributed to this report

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