Slowly does it for Goldman rejig

Lloyd Blankfein tweeted sarcastically last week that he missed testifying before Congress. At the time, his successor as Goldman Sachs CEO, David Solomon, was being grilled by resurgent Democrats targeting Wall Street. Blankfein probably did not miss Monday’s first-quarter earnings call either. Goldman announced that profits fell a fifth, year over year.

Its business model is clearly in a painful and slow transition. In the first quarter of 2018, fuelled by tax cuts and strong sales and trading revenue, Goldman recorded a juicy return on equity of more than 15%. Its return on equity in this period of 2019 dropped to 11%. Partly blame fixed-income trading. Revenue fell by a 10th. Investment banking income was essentially flat though, only because mergers & acquisitions revenue jumped by half. That compensated for big drops in debt and equity underwriting. Contribution from Goldman’s formidable principal equity investing unit also fell by a fifth.

In fairness, Goldman took action by cutting pay costs by more than 20%. The bank plans to invest to reorientate its businesses, particularly around technology. Within investment banking, it is creating a dedicated group to service companies with enterprise values under $2bn. Why would such companies want to work with a biggame hunter like Goldman? Its new corporate cash management product, say executives.

Goldman admits that its business is not what it was, and must be reshaped into something leaner.

Even as the bank says it is committed to fixed-income trading, risk-weighted assets for that division have fallen 40% in the past five years. But it has accumulated $46bn in online banking deposits to lower its cost of funding and says that $4-trillion worth of such money is available.

Rejigging, however sensible the strategy, will require plenty of patience. Blankfein knew what he was doing when he chose his time to retire. /London, April 15