Goldman Sachs is willing to reinvent itself

Goldman Sachs reported pitiful first-quarter earnings on Tuesday, and now the firm is facing tough questions from analysts.

Questions like: When are you going to retake control of your destiny?

On a call following the earnings release, Goldman’s CFO, Harvey Schwartz, was candid about the firm’s willingness to explore alternatives like acquisitions.

Here’s his exchange with Rafferty Capital Markets’ Dick Bove:

BOVE: I don’t see anything wrong with Goldman Sachs. I see things wrong with the world and that Goldman Sachs’ position in the world is where things are wrong. And what I’m wondering is: When do you start thinking about doing a massive merger of equals? When do you start thinking about entering new business lines, which are radically different from the ones you’re in now, understanding that you can’t get anything more from what you’re doing other than waiting for the tide to come in? In other words, when do you get control of your destiny, as opposed to sitting here for nine years letting the world control where you are and what you’re doing?

SCHWARTZ: It’s all about language. I would agree with some of the things you’re saying, [but] certainly wouldn’t agree with your statement that we are waiting for the world to do what it does. If we felt like there is a client segment or transaction we could do that would benefit our shareholders and we could deliver to those clients, we would do it. We’re open-minded. There is a reason why we’re the leading advisory firm in the world — we would take our own advice.

Goldman Sachs’ profits were down 60% in Q1 compared to the same quarter last year. Revenues of $6.34 billion were the lowest for any first-quarter since CEO Lloyd Blankfein took over in 2006, according to Bloomberg.

And it was a similar story across the Street: At Morgan Stanley, profit crashed 54% last quarter. At Citi, it was 27%.

Morgan Stanley CEO James Gorman blamed his firm’s poor performance on “challenging market conditions,” while Lloyd Blankfein cited “an operating environment” that “provided a broad range of challenges.”

They’re right — this quarter was an extreme one. Market volatility and choppy trading conditions in early 2016, fears over China’s growth, and a collapsed oil price created a
“perfect storm”
for banks.

But the longer-term factors hampering bank profits — like near-zero interest rates and post-financial crisis regulations that limit trading activity — remain. And it looks like Goldman Sachs recognises that.

NOW WATCH: Broadway’s biggest hit ‘Hamilton’ is making over $2 million a month — here’s why the producer thinks it could be making a lot more