Is Goldman Sachs Losing Its Trading Edge? (GS)

Goldman Sachs Group Inc. (NYSE: GS) has been an incredible performer among the bulge bracket investment banking firms during the entire credit meltdown and market malaise.  Its shares had been holding up better than any of the large cap competitors, partly because of its massive bet against the credit markets and partly because of its other trading efforts outperforming peers.  But some evidence is surfacing that a part of this may be peaking or that the firm has lost part of its edge.  Today we have seen an SEC filing which may be far more pertinent than an analyst estimate cut and a trader move.

First and foremost, you can see the performance in this SEC FILINGshowing that there has been some very lackluster performance.  This isonly the month of July, but it is the Series 1 of Goldman Sachs HedgeFund Partners, LLC showing a drop of -2.57% for the month.  If you lookat that filing, you will see what we mean.  Goldman Sachs GlobalTactical Trading, LLC (“GTT”), Goldman Sachs Global Equity Long/Short,LLC (“GELS”), Goldman Sachs Global Relative Value, LLC (“GRV”), GoldmanSachs Global Fundamental Strategies, LLC  (“GFS”) ALL lost money inJuly and Goldman Sachs HFP Opportunistic Fund, LLC (“HFPO”) postedgains of 2.37%.  We won’t be naive enough to make any assumptions thatone month is the end of a firm doing well since there are many otherinternal operations, but there are other issues.

Credit Suisse didn’t downgrade the stock’s official rating in abrokerage and asset manager call today, but it did trim Q3 estimates to$1.50 from $2.15 EPS and trimmed the full-year to $13.50 from $14.50EPS.  The analyst cited weak investment banking activity, pricedeclines, widening credit spreads, and one other thing… WEAK TRADING.

Today Reuters reported that UBS AG hired Goldman’s trading executiveCarsten Kengeter as its new global head of fixed income, currencies andcommodities trading.  Kengeter is supposed to start early next year andwas most recently a partner and co-head of Goldman’s securitiesdivision for Asia (ex-Japan) with responsibility for all fixed incomemarkets in the region.  If that was performing incredibly well therewould be a serious incentive to wait for the Goldman Sachs bonus tokick in all over again.

Goldman Sachs closed down 4% at $160.90 on less than 8 million sharestoday.  This stock is down slightly over the last quarter, but down 36%from its 52-week highs.  It will be interesting to see how it does onits next earnings.  Particularly its trading.

Jon C. Ogg
September 4, 2008