Goldman Sachs Sticks to High-Risk Trading Approach Despite Heavy Losses

Goldman Sachs has reaffirmed its commitment to high-risk trading practices in its interest rate business, despite sustaining heavy losses of nearly $1 billion in March due to market volatility. The bank's co-head of global banking and markets, Ashok Varadhan, defended the performance of the rates desk to the bank's board, which had raised eyebrows over the large loss.

According to sources, Goldman's high-risk approach has been a key factor in driving its market share gains in rates trading. The bank's risk appetite is consistently above that of its competitors, with regulatory filings showing that it averaged $85 million in value-at-risk for interest rate products in the first quarter and peaked at $163 million.

While this high-stakes approach has contributed to Goldman's growth as a major player in rates trading, it also comes with significant downsides. The bank has sustained heavy losses in three out of the past four years, including the recent March loss. However, its earnings suggest that the bank's strategy paid off, with significantly higher rates revenues in the second quarter and a 32% rise in fixed income revenues from a year earlier.