Exclusive: Goldman's European derivatives revenue soars

Wed Mar 28, 2012 7:37am EDT
 
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By Lauren Tara LaCapra

(Reuters) - Goldman Sachs Group Inc's (GS.N: Quote) first-quarter earnings are expected to benefit from the increased use of derivatives by European clients seeking ways to hedge risk, according to an internal report seen by Reuters.

Revenue at Goldman's investment bank in Europe increased by 8 percent from the year-ago period to $476 million, the report said.

A big driver was derivatives that clients, corporations and financial institutions used to hedge bets in the stock and fixed-income markets.

Overall client-driven derivatives revenue was up 142 percent year-to-date in Goldman's Europe division, helping to offset declines in more traditional investment banking businesses, like mergers and acquisitions.

The figures suggest that steps taken by European regulators to stabilize capital markets have been effective and have set the stage for stronger-than-expected quarterly results for Wall Street investment banks.

The figures also suggest that U.S. banks are benefiting from stress among European competitors that have had to step back from the market and reduce risk-taking in the midst of the sovereign debt crisis.

On a conference call last week to discuss quarterly results, Jefferies Group Inc JEF.N Chief Executive Richard Handler said "a number of larger foreign players who have had ambitions of being global are choosing to go back to their respective countries to basically satisfy their regulators and the rating agencies." That is a situation, he said, that "creates an opportunity" for U.S. competitors to gain market share.

Goldman's derivatives gains were driven by clients adjusting their balance sheets for counterparty credit risks, as well as European financial institutions seeking capital gains, said a source familiar with the results who spoke on condition of anonymity because the figures are not public.   Continued...

 
A Goldman Sachs sign is seen on at the company's post on the floor of the New York Stock Exchange, January 18, 2012. REUTERS/Brendan McDermid