A slump in Goldman Sachs Group Inc’s long-dominant trading business has sharpened questions about the Wall Street kingpin’s strategy as technological change disrupts the finance industry.
“Goldman Sachs has run out of steam,” Vertical Research Partners LLC analyst Richard Bove said. “It needs inspiration. It needs new management, new businesses, new activities.”
Goldman’s travails are something of a surprise given its unparalleled prestige in US finance.
Long associated with the super rich and powerful, Goldman Sachs has been involved in complex and sometimes controversial transactions and dealings. Its global alumni includes European Central Bank President Mario Draghi and several current White House officials, including US Secretary of the Treasury Steven Mnuchin and National Economic Council Director Gary Cohn, who is attempting to shepherd a major tax reform bill through Washington.
Meeschaert Capital Markets Inc president Gregori Volokhine said the 148-year-old firm “must be reinvented.”
Goldman reported an unprecedented 40 percent plunge in revenues for trading in fixed income, commodities and currencies (FICC) in the second quarter, a performance that lagged that of rivals JPMorgan Chase & Co and Morgan Stanley.
FICC has long been a key profit center at Goldman and helped launch the rise of top brass such as chief executive Lloyd Blankfein, president and co-chief operating officer Harvey Schwartz and chief financial officer Martin Chavez.
However, since the 2008 financial crisis, the role of trading desks has eroded as powerful automated trading algorithms have gobbled up more transactions and as more investors have embraced exchange traded funds which have lower costs.
Competitors like Morgan Stanley slashed jobs in that business two years ago.
This trend also has been encouraged by tougher regulations on speculative activities, especially the Volcker rule, which restricts proprietary trading.
About 70 percent of volumes on the New York Stock Exchange now are on automated trading systems, Volokhine said.
Analysts are eager to hear how Goldman plans to right the ship, and Schwartz is scheduled to address investors at a conference this week hosted by Barclays PLC.
Bove wants the firm to acknowledge that many high-risk transactions that once boosted results are no longer bankable and it sees new opportunities ahead.
“Hopefully,” Schwartz will say that Goldman is going to be “doing more trading with Procter & Gamble Co and less trading with XYZ hedge fund and that this quarter was a lousy one,” Bove said.
So far, Goldman Sachs has argued that trading remains a viable business, which will pick up in times of market volatility. The company also said business should be boosted by deregulatory moves by US President Donald Trump’s administration.
Blankfein has spoken of opportunities to serve as a “full-service” bank, but acknowledged in an interview last month: “We underperformed. We know what we have to do it and we’re doing it.”
Still, he said: “We have a good reputation for resiliency and adaptation.”
Bove said Goldman should shift to more conventional lending, an area it has begun to embrace with the creation of GS Bank, which has savings accounts, and Marcus, an online lending program.
Goldman should also consider acquisitions of smaller lenders.
BULK PURCHASE: The French chain and Hong Kong-based Dairy Farm International reached a deal covering 224 stores, which is expected to be finalized by year’s end Carrefour SA yesterday announced it would acquire Wellcome Taiwan Co (惠康百貨) for 97 million euros (US$108.33 million), and bring all the Wellcome supermarkets (頂好超市) and Jasons Market Place stores nationwide under its banner within 12 months of the deal closing. The France-based hypermarket chain reached an agreement with Hong Kong-based Dairy Farm International Holdings (牛奶國際控股), the pan-Asian retailer that launched Wellcome Taiwan in 1987. The transaction involves 199 Wellcome supermarkets, which have average sales areas of 420m2 and 25 high-end Jasons Market Place stores, which have an average sales area of 820m2, as well as a warehouse in Taoyuan, Carrefour Taiwan (家樂福)
‘ONE-STOP SHOP’: A Miaoli official said that the factory in the Jhunan section of the Hsinchu Science Park would create more than 1,000 jobs and boost prosperity A new high-end IC packaging and testing plant planned by contract chipmaker Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) in Miaoli County is expected to start operations in the middle of next year, Miaoli County Commissioner Hsu Yao-chang (徐耀昌) said. Hsu wrote on Facebook that TSMC, the world’s largest pure wafer foundry operator, would invest NT$303.2 billion (US$10.1 billion) to build the plant, the largest-ever single investment in Taiwan. However, TSMC declined to disclose the financial terms of the deal, while a company board meeting on May 12 approved a spending plan worth NT$168.2 billion as part of its investment plans. Construction of the
SCATTERED: Production would be dispersed among a number of countries, which would bring an end to so-called world factories, Hon Hai chairman Young Liu said Decentralized production would be the new focus in manufacturing, Hon Hai Precision Industry Co (鴻海精密) chairman Young Liu (劉揚偉) yesterday told an online forum held by the Market Intelligence & Consulting Institute (MIC, 產業情報研究所). “The COVID-19 pandemic exerted a heavy impact on supply chains as well as production ... [production] would no longer be concentrated in solely one country, this is the end of what we used to call world factories,” Liu said during a panel discussion hosted by MIC director Victor Tsan (詹文男). As the US and China continue to dominate and sway international relations, the rest of the world is
PLANNED OUT: The government is lifting sale and export restrictions on 60% of the 20 million masks made daily, but people can still make purchases using their NHI cards Twenty thousand boxes of 50 masks each would be on sale at FamilyMart convenience stores starting tomorrow, Taiwan FamilyMart Co Ltd (全家便利商店) said yesterday. A box of 50 masks would cost NT$249 for those with FamilyMart memberships and NT$299 for those without, with no limits placed on how many boxes a person can buy, the company said. Convenience store chain operator Hi-Life International Co Ltd (萊爾富) said that it would also start selling masks from tomorrow. It has yet to announce details about prices and quantity. Hypermarket chain operator Carrefour Taiwan (家樂福) said that it would start selling packs of five