- Goldman Sachs
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 $2.8 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 $4.7 billion in 2015 and more than $5.6 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 favor 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.”