Goldman trims risk-taking to lowest level in seven years

Goldman Sachs Group Inc reduced its risk-taking for a third straight year, with potential losses from trading positions dropping to the lowest level in seven years, reflecting a more cautious stance towards markets. The Wall Street bank's average daily value at risk last year was $86 million, down 24 percent from the preceding year, according to a filing with the US Securities and Exchange Commission on Friday.
The measure shows how much money Goldman estimates it could lose on an average day, with 95 percent confidence. Goldman was not alone in reporting lower risk-taking. On average, its four biggest Wall Street rivals - Morgan Stanley and the trading businesses of J.P. Morgan Chase & Co , Bank of America Corp and Citigroup Inc - reported an average decline of 21 percent in comparable average daily value-at-risk.
Lower risk-taking shows that these firms are taking to heart at least some of the lessons from the financial crisis and its aftermath. But it is unclear how much of the reduction in risk-taking comes from market conditions and exposure, and how much of it comes from changes in models to calculate risk.
Goldman's risk-taking in 2012 was at the lowest level since 2005, when it reported an average daily value-at-risk of $70 million. It was less than half the $218 million of average daily value-at-risk Goldman reported at its 2009 peak. Goldman lost money on 16 trading days in 2012, compared with 54 days in 2011. It did not lose more than $75 million on a single day, whereas the previous year it lost at least $100 million on four days. Likewise, the bank earned at least $100 million on 41 days in 2012, compared with 54 days in 2011.
Overall, Goldman's trading and investing businesses were more profitable last year than in 2011. Goldman reported $5.6 billion in pretax earnings from its client trading business and $3.2 billion in pretax earnings from its investing and lending division, which puts Goldman's own money to work. In 2011, those businesses reported earnings of $4.4 billion and a loss of $531 million, respectively. In a separate filing, Citigroup reported a new 2011 value-at-risk of $176 million in a regulatory filing on Friday. The figure is 17 percent less than the original $213 million figure it reported a year ago.