Monday, April 27, 2009

Goldman's VAR

According to Bloomberg:

April 27 (Bloomberg) -- Goldman Sachs Group Inc., unbowed by the securities industry’s worst year since the Great Depression, increased its trading bets at the fastest rate on Wall Street.

Goldman Sachs’s so-called value-at-risk, the amount the New York-based bank estimates it could lose from trading in a day, jumped 22 percent to $240 million in the first quarter, twice what Morgan Stanley stands to lose, company reports show. VaR climbed 2.8 percent in the same period at JPMorgan Chase & Co. and dropped 14 percent at Credit Suisse Group AG.

According to Goldman's Q1 conference call:

Turning to risk, average daily value at risk in the first quarter was $240 million compared to $197 million for the fourth quarter. The increase was driven by higher credit spread risk.

Q: Okay. And then just real quickly on the VAR, it sounds as if the principal trading business, less emphasis, agency business is probably a little bit higher this quarter, maybe that characterization is wrong; correct me if I''m wrong but if that is the case, why would VAR be higher? If you could just help us conceptualize that a little bit.

A: It's really just volatility and movements in credit spreads that drove it. It's not position size.

No comments: