Goldman Sachs Group, Inc. (GS.US) unexpectedly "shocked" in its financial report: interest rate trades suffered losses of nearly $1 billion, with the gamma trading department being the main culprit.

This week, Goldman Sachs Group, Inc. (GS.US) announced a lower-than-expected financial report, which surprised investors and put pressure on its stock price. The "culprit" behind this result is its large scale interest rate trading business - after the US launched attacks on Iran, interest rates surged, causing significant damage to this business. According to sources, the Goldman Sachs Group, Inc.'s US Non-Linear Gamma Interest Rate Trading department, led by Arvind Giridhar, suffered losses, which was one of the reasons the business unit's first quarter performance fell short of analysts' expectations by nearly $1 billion. Gamma trading mainly involves speculation on the changes in the speed of price fluctuations of derivative risk exposure with underlying asset prices. A spokesperson for Goldman Sachs Group, Inc. declined to comment on this. This trading department is part of Goldman Sachs Group, Inc.'s Fixed Income, Currency, and Commodities (FICC) business unit, which reported a surprising decline in revenue on Monday. The revenue for the period was $4 billion, a 10% year-on-year decrease, which was over $800 million lower than analysts' general expectations. At the same time as this loss occurred, several large multi-strategy hedge funds known for stable income also experienced losses in March. Turbulence in the Middle East disrupted energy, bond, stock, and other markets, forcing traders to close out crowded positions, triggering a chain reaction in the market. This situation also poses a challenge for Anshul Sehgal. As one of the three co-heads of Goldman Sachs Group, Inc.'s FICC business, he is responsible for institutional mortgage trading operations and was promoted to Goldman Sachs Group, Inc.'s highest management committee last year. Goldman Sachs Group, Inc's CEO David Solomon defended the company's fixed income trading business, criticizing analysts for setting expectations too high. Solomon said on an analyst conference call, "This is largely due to the expectations set by research institutions." He also pointed out that even so, this was the tenth best quarter in the history of Goldman Sachs Group, Inc.'s FICC business in terms of performance. However, Goldman Sachs Group, Inc.'s stock trading business performed well above expectations, achieving quarterly revenues of $5.33 billion, setting a new record for single-quarter stock trading revenue for all banks on Wall Street. As financial reports continue to be released this week, the fixed income trading performance of most of Goldman Sachs Group, Inc.'s competitors has exceeded market expectations. Goldman Sachs Group, Inc. President John Waldron said at a media event in Washington on Wednesday, "Especially in periods of high volatility in the interest rate and commodity markets, trading operations may not always meet expectations. Quarterly results have fixed accounting cutoff dates and will eventually show the established results. However, in the long run, I have no worries about the company's FICC business." In early March, several banks predicted that front-end interest rates would fall, as the labor market cooled down, and the general expectation was that the Federal Reserve would soon start cutting interest rates. However, the escalation of the Iran situation raised expectations of a surge in energy prices, continued turmoil in the Middle East, and instead led to a significant rise in interest rates. Insiders said that Goldman Sachs Group, Inc.'s interest rate trading department is relatively large, serving many top hedge funds and risk investment institutions on Wall Street, making it more sensitive to political shocks than some of its counterparts. In contrast, JPMorgan Chase & Co.'s first-quarter interest rate business revenue also declined, but its dependence on this business is lower, and its overall fixed income unit revenue still achieved a 21% growth. On Monday, Goldman Sachs Group, Inc.'s CFO Denis Coleman briefly mentioned the decline in fixed income trading revenue, attributing it to a "significant decrease" in revenue from the interest rate and mortgage trading department, while noting that the foreign exchange and commodities business performed strongly. In fact, according to another source, revenue from Goldman Sachs Group, Inc.'s commodities business increased by over 60% year-on-year, consistent with the overall prosperity on Wall Street.