Goldman Sachs has been having a tough time in bond trading,
a business that was once a dependable source of revenue.
The US bank delivered $US2.8 billion in fixed income, currencies and commodities client execution revenues in the first half of 2017, down 19% from the same period last year. That figure was $US4.7 billion in 2015 and more than $US5.6 billion in both 2013 and 2012.
In fact, Goldman Sachs’ latest first-half performance in FICC client execution was its worst since the US bank started reporting the results in the current format.
Rather than using the cliff to push for a restructuring of the business, Goldman is heading in a different direction.
Credit Suisse analyst Susan Roth Katzke, recently met with Goldman Sachs’ global cohead of the securities division Pablo Salame and reports the following (emphasis ours):
“While some might advocate for a restructuring of the Goldman FICC franchise, the focus on cost and capital rationalization was never lost on management — this has been done, and perhaps more aggressively and extensively than what might have been optimal, in retrospect—note the >30% decline in related RWAs and what we believe to have been a near equal decline in direct operating expenses … Today, management has “no angst” with respect to profit margins in the FICC business … there are investments to be made and gaps to be filled with a willingness and ability to do so.
Here’s a list of Goldman Sachs’ priorities in FICC, according to Katzke (again, the emphasis is ours):
- “A focus on broadening the client base (asset managers and corporates in focus, with more opportunity to gain wallet share than had been previously anticipated).”
- “A broadening of the product set to build out the cash trading franchise (cash credit is a recurring example of an investment now well underway).”
- “There’s a continued focus on building out the financing businesses (lending and DCM both supportive of the FICC franchise)”
- There’s “some incremental investment in favour of the EM franchise (though management is clear it will never have a money center bank-like footprint).”
- “Longer term, cash management/treasury services is an initiative squarely on Goldman’s radar screen, with the view that technology renders these businesses more disrupt-able today and limited/no presence is not OK.”
Get the latest Goldman Sachs stock price here.
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