Goldman Sachs commodities risk near 7-year low

NEW YORK (Reuters) - Goldman Sachs' commodities trading risk has hit a near seven-year low, quarterly results on Wednesday showed, suggesting the Wall Street giant had become less aggressive lately in taking advantage of surging oil, metals and grains prices.

Goldman's Value-at-Risk (VaR) for commodities stood at $23 million for the fourth quarter ended December 31. That was down 20 percent from the $29 million in the third quarter and almost 40 percent lower than the $38 million seen a year ago.

VaR is an industry measure for how much of a bank's money is at risk on a day for trading a particular asset class. Goldman's VaR readings are particularly watched as it is the world's largest investment bank and one of the biggest in commodities trading.

Goldman raised its risk in equity and currency trading during the fourth quarter. But it slashed its commodities VaR, bringing it to the lowest since the first quarter of 2004 and trailing rival JPMorgan Chase which assumed a higher risk for commodities in the fourth quarter.

Commodity markets, as measured by Reuters-Jefferies CRB index, jumped 16 percent in the fourth quarter of 2010, their biggest growth in more than two years.

Goldman's sharply pared risk in the asset class suggested it was putting on fewer of the big commodity trades it once did, a trend noticeable at major Wall Street banks since U.S. financial laws put a cap last year on how much of their own money banks could use to trade.

"I think Goldman is consciously making smaller bets on commodities," said Matt McCormick, banking analyst at Bahl & Gaynor in Cincinnati, Ohio. "Anytime you go back to a low of 2004, you are clearly making a substantial call."

Goldman posted a 53 percent decline in profit for the fourth quarter. It said net revenue in fixed income, currency and commodities slid 39 percent, reflecting "generally low client activity levels".

Goldman's commodities VaR by the quarter (in million dollars):

Q4 Q3 Q2 Q1

2010 23 29 32 49

2009 38 27 40 40

2008 38 51 48 38

2007 25 24 24 30

2006 29 31 31 30

2005 25 25 24 28

2004 27 25 24 15

Note: Maximum loss expected in a day, based on a 95 percent confidence level that takes into account all but 5 percent of potential scenarios.

(Editing by Marguerita Choy)

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