Goldman willing to deploy more capital to trading arm

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February 13, 2018

Goldman Sachs has held out the prospect of a revival in its beaten-up FICC business, saying the bank is willing to deploy more capital to respond to a “more attractive opportunity set.”

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Goldman’s fixed-income, currency and commodities trading division was a persistent drag on profits last year, as the bank struggled to make money in thin and listless markets. All the big banks across Wall Street recorded drops in revenues from FICC trading in 2017 but Goldman’s fall was the steepest, down 30 per cent to $5.3bn.

The figures prompted criticism from analysts and investors that Goldman had not done enough to respond to a secular downturn in FICC. Industry-wide revenues have roughly halved over the past five years, squeezed by tougher regulation, a shift to electronic platforms and risk aversion among clients.

Speaking at a conference on Tuesday morning in Key Biscayne, Florida, Lloyd Blankfein noted that the bank had cut risk-weighted assets in the FICC business almost in half since the second quarter of 2013, while trimming headcount by about one-fifth since the start of 2012.

But Goldman’s chairman and CEO said that the bank was now prepared to add resources in some areas, in view of a recent upturn in ten-year government bond yields and oil prices which had caused investors to “re-evaluate their portfolios.”

“Today, the trajectory of the global economy is on much firmer footing. Wages have risen and are rising. Consumers and investors are more confident and for sure, more active,” he said. “In this context, I don’t think it would be a good strategic move to forgo the upside in the business from here.”

The comments come as many banks have been revelling in a surge of activity, with volatility triggered by US wage data that showed a build-up of inflationary pressure. Trading in US corporate bonds, for example, is tracking about one-third higher this month than average levels last year, according to data aggregated by Finra.

“Again, we manage the business aggressively, and we’ll cut again if conditions deteriorate,” said Mr Blankfein. “[But] our commitment of resources to FICC has not been and is not static.”

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on:2018-02-13 09:32:00

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