Under New Rules, Goldman Ponders a Leaner Future
Goldman Sachs is looking for fewer touches, at least in one sense.
The firm is relying more on technology and reducing expenses as it contends with new regulations and an uncertain market, said Lloyd C. Blankfein, Goldman’s chief executive, at the Bank of America Merrill Lynch Banking & Financial Services Conference in Manhattan on Tuesday.
In the firm’s equities business, for instance, Mr. Blankfein said that 60 to 70 percent of shares are now traded through “low-touch” channels, without the direct involvement of people. Electronic execution accounts for significant portions of activity in the firm’s cash fixed-income business as well, Mr. Blankfein said at the conference, which is intended to give Wall Street analysts a broad look at the industry.
The commitment to new technology is part of a broader effort to streamline the investment firm. With regulators imposing stricter requirements on big firms, the former ways of Wall Street now look less desirable.
“For the first time, it’s clear that size and complexity come with a higher cost,” Mr. Blankfein said.
He spoke about the new Basel rules, which would require big financial institutions to hold more capital against their assets. Those requirements, Mr. Blankfein said, are forcing institutions to become more “disciplined” in how they allocate resources.
Goldman is also affected by restrictions on trading, like the Volcker Rule, which would limit the bank’s ability to bet with its own money. Mr. Blankfein took an optimistic view of that regulation, saying it would have a stabilizing effect. “The firm’s highs should be lower and lows should be higher,” he said.
Mr. Blankfein struck a cautious tone, echoing the message in the firm’s recent earnings call. Goldman turned a profit in the third quarter, reporting earnings of $ 1.46 billion, or $ 2.85 a share. But executives stressed that the outlook was uncertain.
“We’re barely able to predict the present,” Mr. Blankfein said on Tuesday.
Still, the firm has been able to take advantage of the difficult times. In Europe, where other banks are retrenching, Goldman says it is scooping up clients.
One effect of higher capital requirements is a resurgence in the bond market, as banks become less willing to lend, Mr. Blankfein said on Tuesday.
The chief executive also criticized the stalemate over United States fiscal policy, which could lead to spending cuts and tax increases at the start of next year.
“Our confidence in the system has been eroded” by the fight in 2011 over raising the debt ceiling, Mr. Blankfein said. That debate, he said, was more “shocking” than the current one.
“The markets will be roiled, and then the markets will be relieved,” Mr. Blankfein said. “We are at least braced for a ride.”