Goldman Sachs has a plan for its misfiring bond business (GS)
Bryan Bedder/Getty Images for The New York Times
Goldman Sachs has a plan.
The US investment bank, which has been under pressure over its misfiring bond trading business, on Tuesday set out a strategy to generate an additional $1 billion plus in fixed income, currencies and commodities revenues.
The plan, presented by Harvey Schwartz, president and co-chief operating officer, at the Barclays Financial Services Conference, identified a further $4 billion in revenue opportunities in other business areas across the group. But it was the fixed income, currencies and commodities business that dominated, taking up nine of the 24 pages.
"An important component of our future growth plan is our fixed income, currencies and commodities franchise," he said. "We are not satisfied with our recent performance in FICC. We are intensely focused on it. We know you are, as well."
Here's what you need to know about Goldman Sachs' strategy to get the FICC business firing:
It's not so bad.
Goldman Sachs' leadership has faced numerous questions about the loss of market share in fixed income, currencies and commodities in recent years. In addressing those questions, they've often sought to stress the need for perspective: Goldman Sachs' market share in 2009 was probably unsustainable, and the bank's current market share of around 10% is still higher than it was in 2005.
Schwartz said:
"Since 2009, we’ve seen a pretty steady decline in the industry wallet. We certainly weren’t immune to that. In the last 12 months, industry wallet was roughly half of the peak. It’s fell to $66 billion. Our share roughly 10% understandably below the 2009 peak, but nevertheless above our 2005 share."
Goldman Sachs has already made deep cuts to the FICC business.
Schwartz put some details on the scale of the reshaping of the FICC business, with headcount down 30% in micro (think credit-related products), and 15% in macro (rates, currencies). In other words, the FICC business has hardly stood still.
Now, it's focused on opportunities.
Goldman Sachs' market making revenues are comparable with those of universal banks, according to the presentation, with Goldman posting $6.7 billion in revenues, versus $7.7 billion at universal banks. Where it loses out is in financing opportunities. That stands to reason, given universal banks have huge balance sheets, but Goldman spies an opportunity.
"With greater focus on liquidity provision, and less reliance on lending income, our addressable market in FICC is fundamentally different than many of our peers," Schwartz said.
See the rest of the story at Business Insider
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