The mighty Goldman Sachs is having a bumpy ride. Unlike its more diversified Wall Street rivals, Goldman gets the bulk of its revenue from bond trading and investment banking, its two traditional strengths and the backbone of its formidable reputation as the world’s most powerful bank.
So it must be galling for it to have taken such a pasting on fixed-income trading when the rest of Wall Street enjoyed a bonanza over the last few months.
What’s worse is that its traders lost around $200million on interest-rate products following the market turmoil after the collapse of SVB last month.
Paradoxically, JP Morgan Chase and Citigroup beat first-quarter estimates mainly because of great fixed-income trading.
Overall Goldman’s revenues from bond trading fell sharply by 17 per cent while investment banking was down 2 per cent as new deals slowed. Advisory fees were lower by a similar amount.
No encore: Goldman’s boss, David Solomon, is under fire after the Wall Street giant posted a dismal set of results
With both trading and investment banking well below results from a year ago, the bank posted a poor set of first-quarter figures that missed analysts’ forecasts, sending the shares down as much as 3.6 per cent – not a great look for the world’s most connected bank.
Profit was down at $3.1billion in the quarter compared to $3.83billion a year ago, while revenues were 5 per cent lower at $12.22billion.
Goldman’s recent foray into consumer banking is turning out to be more than a disaster.
It has already chopped around 3,000 jobs across the division, reshuffled management and taken a hit of around $470million on the partial sale of its $4billion Marcus loans portfolio.
Goldman is looking to unwind more of the consumer business, and questions are now being asked about other credit card partnerships, like the one with Apple.
That begs the question over the future of the deal just signed with Apple for its new savings accounts, which is offering customers a whopping 4.15 per cent interest on their accounts.
Goldman’s DJ boss, David Solomon, is already under fire for trying to diversify from its trading arm and investment bank into more of a financial supermarket.
As these results show, focusing on those twin strengths means you are always going to be more vulnerable to boom and bust.
Yet ironically it may well be that by trying to switch the focus to a broader based bank, Solomon and his henchmen have taken their eyes off the ball.
Who knows what impact this has had. What’s sure is that Solomon’s strategy is under the spotlight. Investors will not like the hit to Goldman’s return on tangible equity.
Solomon will be hoping that investors give him time to spin a few more of the electronic dance music discs he loves before showing him the door.
Cash is still king
The speed at which we are heading towards a cashless society is astonishing. Contactless card payments are used by nearly 90 per cent of the population, and make up almost a third of all payments in the UK.
Around a third of all adults use mobile apps such as Apple Pay or Google Pay. Seven million consumers and 750,000 small firms use Open Banking products.
Yet cash is essential for many. The Bank of England’s Sir Jon Cunliffe reckons that one in five of us still prefer it for payments and over 1m rely on it for their everyday spending, often the elderly and the more vulnerable.
Which is why the deputy governor made it clear in a speech on the future of digital money early this week, that the Bank will continue ‘to issue cash as long as there is any demand for it’.
This sounds reasonable and encouraging. But think again. Shouldn’t we be worried by those last few words, ‘demand for it’? Who is the judge of that demand? And how will it be measured? Is it 1,000 people or ten?
The Bank must go further and pledge that there will, in perpetuity, always be physical cash in circulation. Without a physical means of value to store, we lose all freedom.
Open markets
GSK’s Emma Walmsley has pulled off another clever deal, buying Canada’s Bellus Health, a late-stage drugs specialist in respiratory treatments.
That’s a bit hypocritical, you might say, considering our criticism of the takeover frenzy by foreign predators for UK companies.
How can you have one rule for one and one for another? But it is not contradictory. Overseas capital flow is good for business.
The problem for the UK is that too many companies are being sold on the cheap, undervalued by their own investors. That’s the difference.
