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Goldman Sachs hit by trading losses

Goldman’s traders lost up to €100 million in a single session, according to Bank’s regulatory filing to the U.S. market authority

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Trading activities, which usually account for about 50% of Goldman’s income, recorded losses on 15 days in Q2, a record since the last quarter of 2008.

Goldman’s traders lost up to €100 million in a single session, according to Bank’s regulatory filing to the U.S. market authority.

Recent market volatility and selloff worsened trading conditions for major banks traders. Many traders and market makers have seen their business collapse and several funds have sharply cut their positions, which lead to a volatility jump to exceptional levels. At BNP Paribas, the equity volatility trading desk had been told to cease trading. That would be the case for Deusche Bank’s prop trading desks as well.

These market conditions have resulted in extreme situations. Gold has exceeded $1,800 per ounce for the first time ever, reflecting fears related to European debt and falling equity markets. Volatility of the Bund went from 8.4 to 12.5 between Thursday, August 4 and Monday, August 8: a 50% increase. Actually, it reached a new historical high, even above the implied volatility observed after the bankruptcy of Lehman Brothers. At the time, the VIX had increased by more than 90%, from 22.75% to 44.4%.

On Wednesday, 2 years U.S. interest rates dropped to 0.18% and the 10 years U.S. rates to 2.14%. 2 years German rates fell to 0.57% and 10 years German rates to 2.19%. Market players continued their massive reallocations to German and U.S. bonds, which are considered to be safe havens, at the expense of equities, that suffer also from new recession anticipations.

Steve Tui , August 2011

Article also available in : English | français

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