Goldman Sachs has a bull case for the business that has been wrecking Wall Street

Fixed income, currencies, and commodities trading businesses have been a horror show for Wall Street banks.

Goldman Sachs, however, has stayed the course in the business, largely maintaining its presence as rivals have pulled back.

On an earnings call on Wednesday following the release of the firm’s fourth-quarter earnings, Goldman Sachs’s CFO Harvey Schwartz laid out the bull case for the business.

“We don’t generally run the businesses for the bull case, but there certainly is a bull case in terms of fixed income activity,” Schwartz said.

“The stable to improving global growth — and we’re seeing that in the US and were seeing that across Europe — certainly could be a tailwind,” he said.

So could diverging monetary policies around the world, and the increased business that will come from currency hedging over the course of the next couple of years.

“There certainly is an upside case,” he said.

(To get the must-read guide to the key issues at every major Wall Street bank, click here.)

Fixed income, currency, and commodities, or FICC, revenues at Goldman Sachs missed analyst expectations in the fourth quarter, coming in at $1.12 billion ($1.19 billion expected).

They were down 8% from the year-ago quarter, which the firm attributed to “significantly lower net revenues in commodities” and lower mortgages and currencies revenues.

Competitors showed similar results: Morgan Stanley reported FICC revenues of $550 million, missing expectations of $593 million, and down from $599 million a year ago.

In the third quarter, FICC revenue was down 42% year-on-year at Morgan Stanley. That firm has responded by cutting 25% of its FICC headcount.

It is not just a short term dip, either. As the chart below from Morgan Stanley’s Huw van Steenis shows, industry-wide revenues in FICC have been trending down since 2012.

But Schwartz said on the call that it’s important to understand Goldman’s philosophy toward managing cyclical businesses.

“Everyone has to acknowledge that financial services is a cyclical industry,” he said, noting that Goldman Sachs was careful not to over-invest when FICC business was good in 2009.

He also said they have been proactive with cost-cutting. In November, Schwartz said Goldman Sachs had quietly been making cuts to its FICC division, laying off more than 10% of staff since 2013.

“The reason we don’t make announcements is because I think that’s just what you need to do in this business,” he said at the time.

On Wednesday, he said that if the downturn in FICC business continues throughout the year, they could make more changes, but added, “Right now, given all the work we’ve done on the cost side, we don’t feel like we need to catch up.”

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