Is Goldman Sachs (NYSE: GS) losing its touch when it comes to trading? It may be more a case of competitors willing to jump into the fray and aggressively compete.

Recall that in the aftermath of the credit crunch, a lot of banks scaled back. Goldman Sachs was happy to fill the void, and take advantage of widened spreads and higher commissions. The results were spectacular. Fixed-income trading alone accounts for about half its net revenue.

But competitors staffed up and reasserted themselves. And that has made a difference. According to Bloomberg, the gilded bank's fixed-income trading revenue as a share of the top eight bank's trading revenue fell to 19 percent in the third quarter from a peak of 29 percent in the last three months of 2009. And the gap between it and its nearest rival narrowed to $239 million in the quarter, the smallest amount since confidence in credit markets collapsed.

When it comes to FICC in general, Goldman made $3.77 billion from trading bonds, currencies, commodities, interest-rate products and credit derivatives in the third quarter, the lowest amount since 2008. It made more than its rivals but the spread has narrowed considerably.

We'll have to see if this holds secularly. The market has forced all to cut back on risk. The real issue is what will happen when the trading environment picks back up. Will we see another big void for Goldman to exploit? Or will competitors be incentivized from the start?

For more:
- here's the Bloomberg article

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