As Lloyd Blankfein fights against whispers that he will step down as Goldman Sachs CEO later this year, questions about the firm’s strategy are increasing.
Goldman Sachs’ fourth quarter earnings call on 17 January was a chest-baring attempt to convince analysts it was about to turnaround its flagging FICC trading business. “Low volatility, low activity” was the official explanation for the lacklustre results, which saw institutional client revenues hit a record annual low of $11.9 billion, about half the amount earned in 2010.
That was before the burst of market volatility in early February, when the VIX index returned to levels not seen since 2011. Meanwhile, commodities, a mainstay of Goldman’s FICC business, are increasing in price, which may prompt more trading. Goldman’s first quarter earnings are still over five weeks away, but might a recovery be on the cards?
Risky Finance has gone through seven years of Goldman risk filings to explore what has changed in the bank’s trading business. How much potential is there for mean reversion (as volatility indicates) and how much change is due to secular trends that the bank couldn’t or shouldn’t try to reverse?