REPORT: A Really Bad Currency Trade Totally Ruined Goldman's Quarter

Lloyd blankfeinREUTERS/Pascal LauenerLloyd Blankfein, chairman and CEO of Goldman Sachs Group, attends the annual meeting of the World Economic Forum (WEF) in Davos in January 25, 2013.

The Wall Street Journal’s Justin Baer reportsthat a “complex bet in the foreign-exchange market backfired” for Goldman.

Specifically, the forex desk bet incorrectly on the value of the dollar versus the Japanese yen, according to the report. Oops!

Every quarter, we look at all the major bank’s trading revenue from fixed income, currencies, and commodities dubbed “FICC.”

But major banks don’t break out each component of FICC, so when Goldman Sachs reported $US1.25 billion FICC net revenue during the third quarter, down 44% from 2012 and 49% from Q2 2013, we only had this explanation from the earnings report to go by: “…reflecting significantly lower net revenues in mortgages and interest rate products, as well as in currencies.”

Now it seems “currencies” was the key term here.

It’s unclear what the miscalculation was. The yen has slumped against the dollar over the past year, but that trend has petered out a bit lately.

It’s also unclear just how much Goldman lost on the trade, but as Baer notes, “Goldman’s FICC arm tends to rely more heavily than other rivals on business from hedge funds and other large investors that seek out more complex trades.”

Read the full report at the Wall Street Journal »

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