Aslump in Goldman Sachs’s long-dominant trading business has sharpened questions about the Wall Street kingpin’s strategy as technological change disrupts the finance industry.
“Goldman Sachs has run out of steam,” said Richard Bove, analyst at Vertical Research. “It needs inspiration. It needs new management, new businesses, new activities.”
Goldman’s travails are something of a surprise given its unparalleled prestige in American finance.
Long associated with the super rich and powerful, Goldman Sachs has been involved in complex and sometimes controversial transactions and dealings.
Its global alumni includes European Central Bank head Mario Draghi and several current White House officials, including Treasury Secretary Steven Mnuchin and National Economic Council director Gary Cohn, who is attempting to shepherd a major tax reform bill through Washington.
Gregori Volokhine, President of Meeschaert Capital markets, said the 148-year-old firm “must be reinvented.”
Goldman reported an unprecedented 40 per cent plunge in revenues for trading in fixed income, commodities and currencies (FICC) in the second quarter, a performance that lagged that of rivals JPMorgan Chase and Morgan Stanley.
FICC has long been a key profit centre at Goldman and helped launch the rise of top brass such as Chief Executive Lloyd Blankfein, President and Co-chief Operating Officer Harvey Schwartz and Chief Financial Officer Martin Chavez.
But since the 2008 financial crisis, the role of trading desks has eroded as powerful automated trading algorithms have gobbled up more transactions and as more investors have embraced exchange traded funds which have lower costs.
And competitors like Morgan Stanley slashed jobs in that business two years ago.
This trend also has been encouraged by tougher regulations on speculative activities, especially the Volcker rule which restricts proprietary trading.
Around 70 per cent of volumes on the New York Stock Exchange now are on automated trading systems, Volokhine noted.
Analysts are eager to hear how Goldman plans to right the ship, and Schwartz is scheduled to address investors at a conference next week hosted by rival bank Barclays.
Bove wants the firm to acknowledge that many high-risk transactions that once boosted results are no longer bankable and it sees new opportunities ahead.— AFP
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