“Sorry to give you a hard time on your first call,” UBS analyst Brennen Hawken told Goldman Sachs’ incoming chief financial officer Marty Chavez, before returning to ask a question about a popular topic.
“The FICC [Fixed income, currencies and commodities] question, I’m still confused, I think I have some company,” he said.
Earlier, Goldman Sachs reported first quarter earnings that came up short, missing estimates by a distance. Fixed income in particular disappointed, with revenue up just 1% on the first quarter of 2016 and down from the final three months of 2016. In comparison, Goldman Sachs’ rivals posted double-digit gains in fixed-income revenue.
It was this weak performance in FICC that dominated the conversation on the earnings call with analysts. It also popped up repeatedly in analyst notes responding to the results. Hawken for example published a note subtitled: “Hard to put lipstick on these results, given solid expectations and peer results so far.”
Chavez, who is currently deputy CFO and will step up to the CFO role next month, repeatedly cited low levels of volatility as reason for the poor performance.
Volatility in the currency and commodities markets were at two-year lows, he said, while realised volatility in the equity market was also at a historic low. When volatility is low, client activity is light, he said.
“We underperformed this quarter, and the underperformance was driven by commodities and currencies,” Chavez said. He added that the weakness was unique to Goldman Sachs, given its strong position in commodities.
Pressed by analysts about Goldman Sachs’ client mix, Chavez said that some rivals have a bigger corporate client base, as they have larger lending books and bigger financing units. Still, Chavez repeatedly noted that this disappointing performance represented just “one quarter.”
He said that in some periods Goldman Sachs’ outperforms, such as was the case in the second half of 2016, and on other occasions it underperforms.
“This isn’t a moment of super concern for us,” Harvey Schwartz, the outgoing CFO, added on the call.
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